1. G.R. No. 155683 February 16, 2007 PETRON CORPORATION, Petitioner, vs.

NATIONAL COLLEGE OF BUSINESS

AND ARTS, Respondent.

The sole question raised in this petition for review on certiorari1 is whether petitioner Petron Corporation (Petron)
should be held liable to pay attorney’s fees and exemplary damages to respondent National College of Business and Arts
(NCBA).

This case, however, is but part of a larger controversy over the lawful ownership of seven parcels of land2 in the V. Mapa
area of Sta. Mesa, Manila (the V. Mapa properties) that arose out of a series of events that began in 1969.3

Sometime in 1969, the V. Mapa properties, then owned by Felipe and Enrique Monserrat, Jr., were mortgaged to the
Development Bank of the Philippines (DBP) as part of the security for the ₱5.2 million loan of Manila Yellow Taxicab Co.,
Inc. (MYTC) and Monserrat Enterprises Co. MYTC, for its part, mortgaged four parcels of land located in Quiapo, Manila.

On March 31, 1975, however, Felipe’s ½ undivided interest in the V. Mapa properties was levied upon in execution of a
money judgment rendered by the Regional Trial Court (RTC) of Manila in Filoil Marketing Corporation v. MYTC, Felipe
Monserrat, and Rosario Vda. De Monserrat (the Manila case).4 DBP challenged the levy through a third-party claim
asserting that the V. Mapa properties were mortgaged to it and were, for that reason, exempt from levy or attachment.
The RTC quashed it.

On June 18, 1981, MYTC and the Monserrats got DBP to accept a dacion en pago arrangement whereby MYTC conveyed
to the bank the four mortgaged Quiapo properties as full settlement of their loan obligation. But despite this agreement,
DBP did not release the V. Mapa properties from the mortgage.

On May 21, 1982, Felipe, acting for himself and as Enrique’s attorney-in-fact, sold the V. Mapa properties to respondent
NCBA. Part of the agreement was that Felipe and Enrique would secure the release of the titles to the properties free of
all liens and encumbrances including DBP’s mortgage lien and Filoil’s levy on or before July 31, 1982. But the Monserrats
failed to comply with this undertaking. Thus, on February 3, 1983, NCBA caused the annotation of an affidavit of adverse
claim on the TCTs covering the V. Mapa properties.

Shortly thereafter, NCBA filed a complaint against Felipe and Enrique for specific performance with an alternative prayer
for rescission and damages in the RTC of Manila. The case was raffled to Branch 30 and docketed as Civil Case No. 83-
16617. On March 30, 1983, NCBA had a notice of lis pendens inscribed on the TCTs of the V. Mapa properties. A little
over two years later, NCBA impleaded DBP as an additional defendant in order to compel it to release the V. Mapa
properties from mortgage.

On February 28, 1985, during the pendency of Civil Case No. 83-16617, Enrique’s ½ undivided interest in the V. Mapa
properties was levied on in execution of a judgment of the RTC of Makati (the Makati case)5 holding him liable to Petron
(then known as Petrophil Corporation) on a 1972 promissory note. On April 29, 1985, the V. Mapa properties were sold
at public auction to satisfy the judgments in the Manila and Makati cases. Petron, the highest bidder, acquired both
Felipe’s and Enrique’s undivided interests in the property. The final deeds of sale of Enrique’s and Felipe’s shares in the
V. Mapa properties were awarded to Petron in 1986. Sometime later, the Monserrats’ TCTs were cancelled and new
ones were issued to Petron. Thus it was that, towards the end of 1987, Petron intervened in NCBA’s suit against Felipe,
Enrique and DBP (Civil Case No. 83-16617) to assert its right to the V. Mapa properties.

The RTC rendered judgment on March 11, 1996.6 It ruled, among other things, that Petron never acquired valid title to
the V. Mapa properties as the levy and sale thereof were void and that NCBA was now the lawful owner of the
properties. Moreover, the RTC held Petron, DBP, Felipe and Enrique jointly and severally liable to NCBA for exemplary
damages and attorney’s fees for the following reasons:

FELIPE and ENRIQUE had no reason to renege on their undertaking in the Deed of Absolute Sale "to secure the release of
the titles to the properties xxx free from all the liens and encumbrances, and to cause the lifting of the levy on execution
of Commercial Credit Corporation, Industrial Finance Corporation[,] and Filoil over the V. Mapa [p]roperty. Moreover,
ENRIQUE had no reason to repudiate FELIPE and disavow authority he had [given] the latter to sell his share in the V.
Mapa property.

On the other hand, the mortgage in favor of DBP had been fully extinguished thru dacion en pago as early as 18 June
1981 but it unjustifiably and whimsically refused to release the mortgage and to surrender to the buyer (NCBA) the
owner’s duplicate copies of Transfer Certificates of Title No[s]. 83621 to 83627, thereby preventing NCBA from
registering the sale in its favor.

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Similarly, [Petron] has absolutely no reason to claim the V. Mapa property. For, as shown above, the levy in execution
and sale of the shares of FELIPE and ENRIQUE in the V. Mapa property were null and void.

Finally, in their Memorandum of Agreement dated 25 September 1992 with Technical Institute of the Philippines,
[Petron] and DBP attempted to pre-empt this Court’s power to adjudicate on the claim of ownership stipulating that "to
facilitate their defenses and cause of action in Civil Case No. 83-16617," they agreed on the disposition of the V. Mapa
property among themselves. For obvious reasons, this Court refused to give its imprimatur and denied their prayer for
dismissal of the complaint against DBP.

These acts of defendants and intervenor demonstrate their wanton, fraudulent, reckless, oppressive and malevolent
conduct in their dealings with NCBA. Furthermore, they acted with gross and evident bad faith in refusing to satisfy
NCBA’s plainly valid and demandable claims. Assessment of exemplary damages and attorney’s fees in the amounts of
₱100,000.00 and ₱150,000.00, respectively, is therefore in order (Arts. 2208 and 2232, Civil Code).7

Enrique, DBP and Petron appealed to the Court of Appeals (CA). The appeal was docketed as CA–G.R. CV No. 53466. In a
decision dated June 21, 2002,8 the CA affirmed the RTC decision in toto. On motion for reconsideration, Petron and DBP
tried to have the award of exemplary damages and attorney’s fees deleted for lack of legal and factual basis. The
Philippine National Oil Company (PNOC), which had been allowed to intervene in the appeal as transferee pendente lite
of Petron’s right to the V. Mapa properties, moved for reconsideration of the ruling on ownership. In a resolution dated
October 16, 2002,9 the CA denied these motions for lack of merit. Thereupon, Petron and PNOC took separate appeals
to this Court.

In this appeal, the only issue is Petron’s liability for exemplary damages and attorney’s fees. And on this matter, we
reverse the rulings of the trial and appellate courts.

Article 2208 lays down the rule that in the absence of stipulation, attorney’s fees cannot be recovered except in the
following instances:
(1) When exemplary damages are awarded;
(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expense to
protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and
demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should
be recovered.

Here, the RTC held Petron liable to NCBA for attorney’s fees under Article 2208(5), which allows such an award "where
the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just, and demandable
claim." However, the only justification given for this verdict was that Petron had no reason to claim the V. Mapa
properties because, in the RTC’s opinion, the levy and sale thereof were void. This was sorely inadequate and it was
erroneous for the CA to have upheld that ruling built on such a flimsy foundation.

Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident bad faith to satisfy another’s
plainly valid, just and demandable claim, compelling the latter needlessly to seek redress from the courts. In such a case,
the law allows recovery of money the plaintiff had to spend for a lawyer’s assistance in suing the defendant – expenses
the plaintiff would not have incurred if not for the defendant’s refusal to comply with the most basic rules of fair
dealing. It does not mean, however, that the losing party should be made to pay attorney’s fees merely because the
court finds his legal position to be erroneous and upholds that of the other party, for that would be an intolerable
transgression of the policy that no one should be penalized for exercising the right to have contending claims settled by
a court of law. In fact, even a clearly untenable defense does not justify an award of attorney’s fees unless it amounts to
gross and evident bad faith.

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Petron’s claim to the V. Mapa properties, founded as it was on final deeds of sale on execution, was far from untenable.
No gross and evident bad faith could be imputed to Petron merely for intervening in NCBA’s suit against DBP and the
Monserrats in order to assert what it believed (and had good reason to believe) were its rights and to have the disputed
ownership of the V. Mapa properties settled decisively in a single lawsuit.

With respect to the award of exemplary damages, the rule in this jurisdiction is that the plaintiff must show that he is
entitled to moral, temperate or compensatory damages before the court may even consider the question of whether
exemplary damages should be awarded.15 In other words, no exemplary damages may be awarded without the
plaintiff’s right to moral, temperate, liquidated or compensatory damages having first been established. Therefore, in
view of our ruling that Petron cannot be made liable to NCBA for compensatory damages (i.e., attorney’s fees), Petron
cannot be held liable for exemplary damages either.

WHEREFORE, the petition is hereby GRANTED. The imposition of liability on Petron Corporation for exemplary damages
and attorney’s fees is REVOKED. The June 21, 2002 decision and October 16, 2002 resolution of the Court of Appeals in
CA–G.R. CV No. 53466 and the March 11, 1996 decision of the Regional Trial Court of Manila in Civil Case No. 83-16617
are hereby MODIFIED accordingly. SO ORDERED.

2. G.R. No. 121171. December 29, 1998

ASSET PRIVATIZATION TRUST, (APTP) petitioner, v. , COURT OF APPEALS, JESUS S. CABARRUS, as Minority Stock
Holders of Marinduque Mining and Industrial Corporation, Respondents.

The petition for review on certiorari before us seeks us to reverse and set aside the decision of the Court of Appeals
which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing the order of
the Regional Trial Court (RTC) Branch 62, Makati City. The Makati RTCs order upheld and confirmed the award made by
the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the
Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION (or approximately P4.5
BILLION, including interest).

Ironically, the staggering amount of damages was imposed on the Government for exercising its legitimate right of
foreclosure as creditor against the debtor MMIC as a consequence of the latters failure to pay its overdue and unpaid
obligation of P22 billion to the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP).

The antecedent facts of the case

The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been
authorized by Republic Act No. 1828, as amended by Republic Acts No. 2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao
Mineral Reservation Board, granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other
minerals in the Surigao mineral reservation.1 MMIC is a domestic corporation engaged in mining with respondents Jesus
S. Cabarrus, Sr. as President and among its original stockholders.

The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture and extension
of guarantees. Further, the Philippine Government obtained a firm, commitment from the DBP and/or other
government financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans or deferred payment
arrangements secured from the US Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100
Million.

DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized
portion of the Government commitment. Thereafter, the Government extended accommodations to MMIC in various
amounts.

On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement whereby MMIC, as mortgagor, agreed to
constitute a mortgage in favor of PNB and DBP as mortgagees, over all MMICs assets, subject of real estate and chattel
mortgage executed by the mortgagor, and additional assets described and identified, including assets of whatever kind,
nature or description, which the mortgagor may acquire whether in substitution of, in replenishment, or in addition
thereto.

Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event that the
MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due.

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Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of defaults,
circumstances by which the mortgagor may be declared in default, the procedure therefor, waiver of period to
foreclose, authority of Trustee before, during and after foreclosure, including taking possession of the mortgaged
properties.

In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings, Promissory Notes, Loans
Documents, Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on demand or under certain
terms the loans and accommodations secured from or guaranteed by both DBP and PNB.

By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached tremendous proportions,
and MMIC was having a difficult time meeting its financial obligations. MMIC had an outstanding loan with DBP in the
amount of P13,792,607,565.92 as of August 31, 1984 and in the amount of P8,789,028,249.38 as of July 15, 1984 or a
total Government exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Thousand
Seven Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine Currency.6 Thus, a financial restructuring plan
(FRP) designed to reduce MMIC' interest expense through debt conversion to equity was drafted by the Sycip Gorres
Velayo accounting firm.7 On April 30, 1984, the FRP was approved by the Board of Directors of the MMIC.8 However,
the proposed FRP had never been formally adopted, approved or ratified by either PNB or DBP.

In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC had become overdue
and since any restructuring program relative to the loans was no longer feasible, and in compliance with the directive of
Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to
extrajudicially foreclose the mortgages in accordance with the Mortgage Trust Agreement.

The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations,
namely, Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation, and Island Cement Corporation. In
1986, these assets were transferred to the Asset Privatization Trust (APT).

On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a derivative suit against
DBP and PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures, Specific Performance and
Damages.12 The suit, docketed as Civil Case No. 9900, prayed that the court: (1) annul the foreclosure, restore the
foreclosed assets to MMIC, and require the banks to account for their use and operation in the interim; (2) direct the
banks to honor and perform their commitments under the alleged FRP; and (3) pay moral and exemplary damages,
attorneys fees, litigation expenses and costs.

In the course of the trial, private respondents and petitioner APT, as successor of the DBP and PNBs interest in MMIC,
mutually agreed to submit the case to arbitration by entering into a Compromise and Arbitration Agreement, stipulating,
inter alia:

NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contain herein, the
parties agreed as follows:

1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims from the Trial Court and to
resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment based on this
Compromise and Arbitration Agreement.

In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the parties have agreed
that:

(a) their respective money claims shall be reduced to purely money claims; and

(b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts, APT shall likewise succeed
to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to be
transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility of, be
discharged by and be enforceable against APT, the partied having agreed to drop PNB and DBP from the arbitration.

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2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead to
arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial Court of
this Compromise and Arbitration Agreement, be transferred and reduced to pure pecuniary/money claims with the
parties waiving and foregoing all other forms of reliefs which they prayed for or should have payed for in Civil Case No.
9900.

The Compromise and Arbitration Agreement limited the issues to the following:

5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether PLAINTIFFS have the capacity
or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) Whether or not the actions
leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good faith.

This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch 62, issued an
order, to wit:

WHEREFORE, this Court orders:

1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant.
2. Approving the Compromise and Arbitration Agreement dated October 6, 1992, attached as Annex C of the Omnibus
Motion.
3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money claims; and
4. The Complaint is hereby DISMISSED.

The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman, Atty. Jose
C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On November 24, 1993, after conducting
several hearings, the Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent portions of
which read as follows:

Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the Committee holds and so
declares that the loans of PNB and DBP to MMIC, for the payment and recovery of which the void foreclosure sales were
undertaken, continue to remain outstanding and unpaid. Defendant APT as the successor-in-interest of PNB and DBP to
the said loans is therefore entitled and retains the right, to collect the same from MMIC pursuant to and based on the
loan documents signed by MMIC, subject to the legal and valid defenses that the latter may duly and seasonably
interpose. Such loans shall, however, be reduced by the amount which APT may have realized from the sale of the
seized assets of MMIC which by agreement should no longer be returned even if the foreclosure were found to be null
and void.

The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100; and also Exhibit ZZZ) as
their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of foreclosure is
P22,668,537,770.05, more or less.

Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668.537,770.05, more or less, with interest thereon as stipulated in the loan documents from the date
of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of the total
capitalization of MMIC under the FRP. Simply put, DBP shall share in the award of damages to, and in obligations of
MMIC in proportion to its 87% equity in the total capital stock of MMIC.

As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So pursuant to the above provision
of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the actual damages of
P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus interest.

DISPOSITION

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of
P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3, 9, and
24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT from the
outstanding and unpaid loans of the MMIC with DBP and PNB, which have not been converted into equity. Should there
be any balance due to the MMIC after the offsetting, the same shall be satisfied from the funds representing the

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purchase price of the sale of the shares of Island Cement Corporation in the amount of P503,000,000.00 held under
escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would
supercede it pursuant to paragraph (9) of the Compromise and Arbitration Agreement;

2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of
P13,000,000.00 as and for moral and exemplary damages. Payment of these moral and exemplary damages shall be
offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted into
equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied from the funds
representing the purchase price of the sale of the shares of Island Cement Corporation in the of P503,000,000.00 held
under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that
would supercede it pursuant to paragraph (9) of the Compromise and Arbitration Agreement;

3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise
from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supercede it, pursuant to paragraph (9) of the Compromise and Arbitration Agreement, as
and for moral damages; and

4. Ordering the defendant to pay arbitration costs. This Decision is FINAL and EXECUTORY. SO ORDERED.

3. G.R. No. L-22973 January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO
Deputy Provincial Sheriff of Camarines Norte, defendants-appellees.

Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant. Tomas Besa and Jose B. Galang for defendants-
appellees.

An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case No. 52089, entitled
"Mambulao Lumber Company, plaintiff, versus Philippine National Bank and Anacleto Heraldo, defendants", dismissing
the complaint against both defendants and sentencing the plaintiff to pay to defendant Philippine National Bank (PNB
for short) the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 until fully
paid, and the costs of suit.

In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which may be restated as
follows:

1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as
concluded by the court a quo; hence, the proceeds of the foreclosure sale of its real property alone in the amount of
P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB thereafter was more than sufficient to
liquidate its obligation, thereby rendering the subsequent foreclosure sale of its chattels unlawful;

2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the additional sum of P298.54 as
expenses of the foreclosure sale;

3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had already settled its
indebtedness to the PNB at the time the sale was effected, but also for the reason that the said sale was not conducted
in accordance with the provisions of the Chattel Mortgage Law and the venue agreed upon by the parties in the
mortgage contract;

4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and

5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous
opposition thereto, and in taking possession thereof after the sale thru force, intimidation, coercion, and by detaining its
"man-in-charge" of said properties, the PNB is liable to plaintiff for damages and attorney's fees.

The antecedent facts of the case, as found by the trial court, are as follows:

On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of defendant PNB and the
former offered real estate, machinery, logging and transportation equipments as collaterals. The application, however,
was approved for a loan of P100,000 only. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB
a parcel of land, together with the buildings and improvements existing thereon, situated in the poblacion of Jose

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Panganiban (formerly Mambulao), province of Camarines Norte, and covered by Transfer Certificate of Title No. 381 of
the land records of said province, as well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff,
all situated in its compound in the aforementioned municipality.

On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which the plaintiff signed a
promissory note wherein it promised to pay to the PNB the said sum in five equal yearly installments at the rate of
P6,528.40 beginning July 31, 1957, and every year thereafter, the last of which would be on July 31, 1961.

On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan granted to the plaintiff and
so on the said date, the latter executed another promissory note wherein it agreed to pay to the former the said sum in
five equal yearly instalments at the rate of P3,679.64 beginning July 31, 1957, and ending on July 31, 1961.

The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated demands were
made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon inspection and verification
made by employees of the PNB, it was found that the plaintiff had already stopped operation about the end of 1957 or
early part of 1958.

On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take
possession of the parcel of land, together with the improvements existing thereon, covered by Transfer Certificate of
Title No. 381 of the land records of Camarines Norte, and to sell it at public auction in accordance with the provisions of
Act No. 3135, as amended, for the satisfaction of the unpaid obligation of the plaintiff, which as of September 22, 1961,
amounted to P57,646.59, excluding attorney's fees. In compliance with the request, on October 16, 1961, the Provincial
Sheriff of Camarines Norte issued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff.
According to the notice, the mortgaged property would be sold at public auction at 10:00 a.m. on November 21, 1961, at
the ground floor of the Court House in Daet, Camarines Norte.

On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take
possession of the chattels mortgaged to it by the plaintiff and sell them at public auction also on November 21, 1961, for
the satisfaction of the sum of P57,646.59, plus 6% annual interest therefore from September 23, 1961, attorney's fees
equivalent to 10% of the amount due and the costs and expenses of the sale. On the same day, the PNB sent notice to
the plaintiff that the former was foreclosing extrajudicially the chattels mortgaged by the latter and that the auction sale
thereof would be held on November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where the
mortgaged chattels were situated.

On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels mortgaged by the
plaintiff and made an inventory thereof in the presence of a PC Sergeant and a policeman of the municipality of Jose
Panganiban. On November 9, 1961, the said Deputy Sheriff issued the corresponding notice of public auction sale of the
mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's compound situated in the
municipality of Jose Panganiban, Province of Camarines Norte.

On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one to the Naga Branch
of the PNB and another to the Provincial Sheriff of Camarines Norte, protesting against the foreclosure of the real estate
and chattel mortgages on the grounds that they could not be effected unless a Court's order was issued against it
(plaintiff) for said purpose and that the foreclosure proceedings, according to the terms of the mortgage contracts,
should be made in Manila. In said letter to the Naga Branch of the PNB, it was intimated that if the public auction sale
would be suspended and the plaintiff would be given an extension of ninety (90) days, its obligation would be settled
satisfactorily because an important negotiation was then going on for the sale of its "whole interest" for an amount
more than sufficient to liquidate said obligation.

The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for extension of the
foreclosure sale of the mortgaged chattels and so it advised the Sheriff of Camarines Norte to defer it to December 21,
1961, at the same time and place. A copy of said advice was sent to the plaintiff for its information and guidance.

The foreclosure sale of the parcel of land, together with the buildings and improvements thereon, covered by Transfer
Certificate of Title No. 381, was, however, held on November 21, 1961, and the said property was sold to the PNB for the
sum of P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one year. On the same
date, Deputy Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy thereof was sent to
the plaintiff.

In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent a bank draft for P738.59
to the Naga Branch of the PNB, allegedly in full settlement of the balance of the obligation of the plaintiff after the
7
application thereto of the sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel of land
described in Transfer Certificate of Title No. 381. In the said letter, the plaintiff reiterated its request that the foreclosure
sale of the mortgaged chattels be discontinued on the grounds that the mortgaged indebtedness had been fully paid and
that it could not be legally effected at a place other than the City of Manila.

In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that it had fully paid
its obligation to the PNB, and enclosed therewith a copy of its letter to the latter dated December 14, 1961.

On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff acknowledging the remittance
of P738.59 with the advice, however, that as of that date the balance of the account of the plaintiff was P9,161.76, to
which should be added the expenses of guarding the mortgaged chattels at the rate of P4.00 a day beginning December
19, 1961. It was further explained in said letter that the sum of P57,646.59, which was stated in the request for the
foreclosure of the real estate mortgage, did not include the 10% attorney's fees and expenses of the sale. Accordingly,
the plaintiff was advised that the foreclosure sale scheduled on the 21st of said month would be stopped if a remittance
of P9,161.76, plus interest thereon and guarding fees, would be made.

On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m. and they were awarded to
the PNB for the sum of P4,200 and the corresponding bill of sale was issued in its favor by Deputy Provincial Sheriff
Heraldo.

In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the plaintiff giving it priority to
repurchase the chattels acquired by the former at public auction. This offer was reiterated in a letter dated January 3,
1962, of the Attorney of the Naga Branch of the PNB to the plaintiff, with the suggestion that it exercise its right of
redemption and that it apply for the condonation of the attorney's fees. The plaintiff did not follow the advice but on the
contrary it made known of its intention to file appropriate action or actions for the protection of its interests.

On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose Panganiban, Camarines
Norte, and they informed Luis Salgado, Chief Security Guard of the premises, that the properties therein had been
auctioned and bought by the PNB, which in turn sold them to Mariano Bundok. Upon being advised that the purchaser
would take delivery of the things he bought, Salgado was at first reluctant to allow any piece of property to be taken out
of the compound of the plaintiff. The employees of the PNB explained that should Salgado refuse, he would be exposing
himself to a litigation wherein he could be held liable to pay big sum of money by way of damages. Apprehensive of the
risk that he would take, Salgado immediately sent a wire to the President of the plaintiff in Manila, asking advice as to
what he should do. In the meantime, Mariano Bundok was able to take out from the plaintiff's compound two truckloads
of equipment.

In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing him not to deliver the
"chattels" without court order, with the information that the company was then filing an action for damages against the
PNB. On the following day, May 25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit
them to take out any equipment from inside the compound of the plaintiff. Thru the intervention, however, of the local
police and PC soldiers, the trucks of Mariano Bundok were able finally to haul the properties originally mortgaged by the
plaintiff to the PNB, which were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok.

Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first paragraph of
this opinion, sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with
interest thereon at the rate of 6% per annum from December 22, 1961 (day following the date of the questioned
foreclosure of plaintiff's chattels) until fully paid, and the costs. Mambulao Lumber Company interposed the instant
appeal.

We shall discuss the various points raised in appellant's brief in seriatim.

The first question Mambulao Lumber Company poses is that which relates to the amount of its indebtedness to the PNB
arising out of the principal loans and the accrued interest thereon. It is contended that its obligation under the terms of
the two promissory notes it had executed in favor of the PNB amounts only to P56,485.87 as of November 21, 1961,
when the sale of real property was effected, and not P58,213.51 as found by the trial court.

There is merit to this claim. Examining the terms of the promissory note executed by the appellant in favor of the PNB,
we find that the agreed interest on the loan of P43,000.00 — P27,500.00 released on August 2, 1956 as per promissory
note of even date (Exhibit C-3), and P15,500.00 released on October 19, 1956, as per promissory note of the same date
(Exhibit C-4) — was six per cent (6%) per annum from the respective date of said notes "until paid". In the statement of
account of the appellant as of September 22, 1961, submitted by the PNB, it appears that in arriving at the total
indebtedness of P57,646.59 as of that date, the PNB had compounded the principal of the loan and the accrued 6%
8
interest thereon each time the yearly amortizations became due, and on the basis of these compounded amounts
charged additional delinquency interest on them up to September 22, 1961; and to this erroneously computed total of
P57,646.59, the trial court added 6% interest per annum from September 23, 1961 to November 21 of the same year. In
effect, the PNB has claimed, and the trial court has adjudicated to it, interest on accrued interests from the time the
various amortizations of the loan became due until the real estate mortgage executed to secure the loan was extra-
judicially foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655 expressly provides that in
computing the interest on any obligation, promissory note or other instrument or contract, compound interest shall not
be reckoned, except by agreement, or in default thereof, whenever the debt is judicially claimed. This is also the clear
mandate of Article 2212 of the new Civil Code which provides that interest due shall earn legal interest only from the
time it is judicially demanded, and of Article 1959 of the same code which ordains that interest due and unpaid shall not
earn interest. Of course, the parties may, by stipulation, capitalize the interest due and unpaid, which as added principal
shall earn new interest; but such stipulation is nowhere to be found in the terms of the promissory notes involved in this
case. Clearly therefore, the trial court fell into error when it awarded interest on accrued interests, without any
agreement to that effect and before they had been judicially demanded.

Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the PNB. With
respect to the amount of P298.54 allowed as expenses of the extra-judicial sale of the real property, appellant maintains
that the same has no basis, factual or legal, and should not have been awarded. It likewise decries the award of
attorney's fees which, according to the appellant, should not be deducted from the proceeds of the sale of the real
property, not only because there is no express agreement in the real estate mortgage contract to pay attorney's fees in
case the same is extra-judicially foreclosed, but also for the reason that the PNB neither spent nor incurred any
obligation to pay attorney's fees in connection with the said extra-judicial foreclosure under consideration.

There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the trial court
said:

The parcel of land, together with the buildings and improvements existing thereon covered by Transfer Certificate of
Title No. 381, was sold for P56,908. There was, however, no evidence how much was the expenses of the foreclosure
sale although from the pertinent provisions of the Rules of Court, the Sheriff's fees would be P1 for advertising the sale
(par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his commission for the sale (par. n, Sec. 7, Rule 130 of the Old
Rules) or a total of P298.54.

There is really no evidence of record to support the conclusion that the PNB is entitled to the amount awarded as
expenses of the extra-judicial foreclosure sale. The court below committed error in applying the provision of the Rules of
Court for purposes of arriving at the amount awarded. It is to be borne in mind that the fees enumerated under
paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are demandable, only by a sheriff serving processes of the
court in connection with judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in cases of extra-
judicial foreclosure of mortgages under Act 3135. The law applicable is Section 4 of Act 3135 which provides that the
officer conducting the sale is entitled to collect a fee of P5.00 for each day of actual work performed in addition to his
expenses in connection with the foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case, that it
actually spent any amount in connection with the said foreclosure sale. Neither may expenses for publication of the
notice be legally allowed in the absence of evidence on record to support it. 1 It is true, as pointed out by the appellee
bank, that courts should take judicial notice of the fees provided for by law which need not be proved; but in the
absence of evidence to show at least the number of working days the sheriff concerned actually spent in connection
with the extra-judicial foreclosure sale, the most that he may be entitled to, would be the amount of P10.00 as a
reasonable allowance for two day's work — one for the preparation of the necessary notices of sale, and the other for
conducting the auction sale and issuance of the corresponding certificate of sale in favor of the buyer. Obviously,
therefore, the award of P298.54 as expenses of the sale should be set aside.

But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the same is
extra-judicially foreclosed, cannot be favorably considered, as would readily be revealed by an examination of the
pertinent provision of the mortgage contract. The parties to the mortgage appear to have stipulated under paragraph (c)
thereof, inter alia:

For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell
the property mortgaged under Act 3135, as amended, to sign all documents and to perform all acts requisite and
necessary to accomplish said purpose and to appoint its substitute as such attorney-in-fact with the same powers as
above specified. In case of judicial foreclosure, the Mortgagor hereby consents to the appointment of the Mortgagee or
any of its employees as receiver, without any bond, to take charge of the mortgaged property at once, and to hold
possession of the same and the rents, benefits and profits derived from the mortgaged property before the sale, less the
costs and expenses of the receivership; the Mortgagor hereby agrees further that in all cases, attorney's fees hereby
9
fixed at Ten Per cent (10%) of the total indebtedness then unpaid which in no case shall be less than P100.00 exclusive
of all fees allowed by law, and the expenses of collection shall be the obligation of the Mortgagor and shall with priority,
be paid to the Mortgagee out of any sums realized as rents and profits derived from the mortgaged property or from the
proceeds realized from the sale of the said property and this mortgage shall likewise stand as security therefor. . . .

We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale mentioned
thereunder, i.e., judicially or extra-judicially. While the phrase "in all cases" appears to be part of the second sentence, a
reading of the whole context of the stipulation would readily show that it logically refers to extra-judicial foreclosure
found in the first sentence and to judicial foreclosure mentioned in the next sentence. And the ambiguity in the
stipulation suggested and pointed out by the appellant by reason of the faulty sentence construction should not be
made to defeat the otherwise clear intention of the parties in the agreement.

It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees were applicable to the
extra-judicial foreclosure sale of its real properties, still, the award of P5,821.35 for attorney's fees has no legal
justification, considering the circumstance that the PNB did not actually spend anything by way of attorney's fees in
connection with the sale. In support of this proposition, appellant cites authorities to the effect: (1) that when the
mortgagee has neither paid nor incurred any obligation to pay an attorney in connection with the foreclosure sale, the
claim for such fees should be denied; 2 and (2) that attorney's fees will not be allowed when the attorney conducting the
foreclosure proceedings is an officer of the corporation (mortgagee) who receives a salary for all the legal services
performed by him for the corporation. 3 These authorities are indeed enlightening; but they should not be applied in
this case. The very same authority first cited suggests that said principle is not absolute, for there is authority to the
contrary. As to the fact that the foreclosure proceeding's were handled by an attorney of the legal staff of the PNB, we
are reluctant to exonerate herein appellant from the payment of the stipulated attorney's fees on this ground alone,
considering the express agreement between the parties in the mortgage contract under which appellant became liable
to pay the same. At any rate, we find merit in the contention of the appellant that the award of P5,821.35 in favor of the
PNB as attorney's fees is unconscionable and unreasonable, considering that all that the branch attorney of the said
bank did in connection with the foreclosure sale of the real property was to file a petition with the provincial sheriff of
Camarines Norte requesting the latter to sell the same in accordance with the provisions of Act 3135.

The principle that courts should reduce stipulated attorney's fees whenever it is found under the circumstances of the
case that the same is unreasonable, is now deeply rooted in this jurisdiction to entertain any serious objection to it.
Thus, this Court has explained:

But the principle that it may be lawfully stipulated that the legal expenses involved in the collection of a debt shall be
defrayed by the debtor does not imply that such stipulations must be enforced in accordance with the terms, no matter
how injurious or oppressive they may be. The lawful purpose to be accomplished by such a stipulation is to permit the
creditor to receive the amount due him under his contract without a deduction of the expenses caused by the
delinquency of the debtor. It should not be permitted for him to convert such a stipulation into a source of speculative
profit at the expense of the debtor.

Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from contracts for the
payment of compensation for any other services. By express provision of section 29 of the Code of Civil Procedure, an
attorney is not entitled in the absence of express contract to recover more than a reasonable compensation for his
services; and even when an express contract is made the court can ignore it and limit the recovery to reasonable
compensation if the amount of the stipulated fee is found by the court to be unreasonable. This is a very different rule
from that announced in section 1091 of the Civil Code with reference to the obligation of contracts in general, where it is
said that such obligation has the force of law between the contracting parties. Had the plaintiff herein made an express
contract to pay his attorney an uncontingent fee of P2,115.25 for the services to be rendered in reducing the note here
in suit to judgment, it would not have been enforced against him had he seen fit to oppose it, as such a fee is obviously
far greater than is necessary to remunerate the attorney for the work involved and is therefore unreasonable. In order
to enable the court to ignore an express contract for an attorney's fees, it is not necessary to show, as in other contracts,
that it is contrary to morality or public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable.

Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees stipulated appear
excessive, unconscionable, or unreasonable, because a lawyer is primarily a court officer charged with the duty of
assisting the court in administering impartial justice between the parties, and hence, the fees should be subject to
judicial control. Nor should it be ignored that sound public policy demands that courts disregard stipulations for counsel
fees, whenever they appear to be a source of speculative profit at the expense of the debtor or mortgagor. And it is not
material that the present action is between the debtor and the creditor, and not between attorney and client. As court

10
have power to fix the fee as between attorney and client, it must necessarily have the right to say whether a stipulation
like this, inserted in a mortgage contract, is valid.

In determining the compensation of an attorney, the following circumstances should be considered: the amount and
character of the services rendered; the responsibility imposed; the amount of money or the value of the property
affected by the controversy, or involved in the employment; the skill and experience called for in the performance of the
service; the professional standing of the attorney; the results secured; and whether or not the fee is contingent or
absolute, it being a recognized rule that an attorney may properly charge a much larger fee when it is to be contingent
than when it is not. 7 From the stipulation in the mortgage contract earlier quoted, it appears that the agreed fee is 10%
of the total indebtedness, irrespective of the manner the foreclosure of the mortgage is to be effected. The agreement is
perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but, surely, it is unreasonable when, as
in this case, the mortgage was foreclosed extra-judicially, and all that the attorney did was to file a petition for
foreclosure with the sheriff concerned. It is to be assumed though, that the said branch attorney of the PNB made a
study of the case before deciding to file the petition for foreclosure; but even with this in mind, we believe the amount
of P5,821.35 is far too excessive a fee for such services. Considering the above circumstances mentioned, it is our
considered opinion that the amount of P1,000.00 would be more than sufficient to compensate the work
aforementioned.

The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together with the
amount it remitted to the PNB later was more than sufficient to liquidate its total obligation to herein appellee bank.
Again, we find merit in this claim. From the foregoing discussion of the first two errors assigned, and for purposes of
determining the total obligation of herein appellant to the PNB as of November 21, 1961 when the real estate mortgage
was foreclosed, we have the following illustration in support of this conclusion.

4. G.R. No. 113176. July 30, 2001. HANIL DEVELOPMENT CO., LTD., Petitioner, v. COURT OF APPEALS AND M.R.
ESCOBAR EXPLOSIVE ENGINEERS, INC., Respondents.

G.R. No. 113342. July 30, 2001 M.R. ESCOBAR EXPLOSIVE ENGINEERS, INC., petitioner v. COURT OF APPEALS AND
HANIL DEVELOPMENT CO., LTD., Respondents.

Before us are Petitions for Review on Certiorari under Rule 45 of the Decision rendered on August 23, 1993 and the
Resolution promulgated on January 5, 1994, both by the Court of Appeals. räläwvirtualibräry

In the early seventies, the Ministry of Public Works and Highways (MPWH for brevity) awarded petitioner Hanil
Development Co., Ltd. (Hanil for brevity) the contract to construct the 200-kilometer Iligan-Cagayan de Oro-Butuan
Highway Project. On November 14, 1976, Hanil sub-let the rock-blasting work portion of the contract to private
respondent M.R. Escobar Explosive Engineers, Inc. (Escobar for brevity). By express stipulation of the parties, Escobar
will be compensated thus:

For the services performed by Sub-Contractor (Escobar) in accordance with the terms and conditions herein described,
Hanil will pay twenty pesos (P20.00) per cubic meter on the following basis:

a. If the rocks are solid in nature, quantity will be assessed as shown on the cross-section.
b. If the nature of the rock is soft and can be removed by using ripper, quantity may be assessed on the actual blasted
amount surveyed by both Company and Sub-Contractors engineers. äläwvirtualibräry

On January 3, 1977, Escobar commenced its blasting works. It continued its services until terminated by Hanil on
December 15, 1978. For the duration of the contract, it worked on the segments of the construction undertaking
designated in the agreement as A-2, B-2, B-3, B-4, and C-1. It was fully paid for the areas A-2 and B-4. It claimed,
however, that Hanil still partially owes it one million three hundred forty one thousand seven hundred twenty-seven and
40/100 (P1,341,727.40) pesos for blastings done in the B-2, B-3 and C-1 areas. The claim was predicated on the theory
that the rocks it caused to explode in the contested areas were solid in nature, and therefore the volume should be
computed using the cross-section approach pursuant to the above-quoted paragraph 9(a). It appears that all the
payments it received were fixed based on the joint survey method under paragraph 9(b). Escobar stressed that Hanil
was always paid by the MPWH using the cross-section system. This was pursuant to the awarded 200-km. highway
project contract between the MPWH and Hanil, where the volumes of rocks to be blasted in specific areas were already
pre-estimated based on the cross-section approach. In fine, Escobars line of reasoning is that Hanil should pay it the
same amount of money Hanil received from the MPWH for the blastings it did in the contested areas (B-2, B-3 and C-1).
The figure P1,341,727.40 represents the difference between the two.

11
Consequently, Escobar instituted Civil Case No. 35966 for recovery of a sum of money with damages against Hanil before
the then Court of First Instance of Rizal (CFI for brevity). Hanil filed its answer with counterclaim for damages. Trial
thereafter ensued. On April 16, 1982, the CFI handed down a Decision ordering Hanil to pay P1,341,727.40 for the value
of rocks blasted by Escobar; 10% of the amount due for attorneys fees; and the costs of suit.

On May 24, 1982, upon Escobars motion, the CFI garnished the bank accounts of Hanil and levied its equipments. On
June 29, 1982, it also granted Escobars Ex-parte Motion to Deposit Cash praying that the Finance Manager of the
National Power Corporation (NAPOCOR) be directed to withdraw Hanils funds from the NAPOCOR and deposit the same
with the Clerk of Court. Hanil challenged the issuance of the May 24 and June 29 Orders before the Court of Appeals in a
Petition for Certiorari with prayer for Injunction and Preliminary Restraining Order, docketed as CA-G.R. No. SP-14512.
The appellate court, in a decision rendered on February 3, 1983, voided the challenged Orders.

While the above-mentioned petition was pending before the Court of Appeals and despite the writ of injunction issued
by it, other developments continued to unfold in the CFI. In an Order dated August 23, 1982, it disapproved Hanils
Amended Record on Appeal and dismissed its appeal. On October 19, 1982, it denied Hanils Motion for Reconsideration
of the August 23 Order and at the same time granted Escobars Motion for Execution of Judgment. These two Orders
were again contested by Hanil before the appellate court in a Petition for Certiorari and Mandamus with prayer for
Prohibition. The said Orders were again annulled and set aside. Hanils appeal was reinstated and the CFI was ordered to
elevate the entire records of the case to the Court of Appeals.

After transmittal of the records, the Court of Appeals notified Hanil on February 11, 1985 to file Appellants Brief within
forty-five days. On March 13, 1985, and within the reglementary period to submit its brief, Hanil filed an Application for
Judgment against Attachment Bond and Motion to Defer Filing of Appellants Brief, praying for a hearing before the
Court of Appeals so it could prove the damages it sustained as a result of the illegal writ of attachment issued by the CFI.
It wanted a judgment against the attachment bond posted by Escobar and its insurer Sanpiro Insurance Corporation
(Sanpiro for brevity) to be included in the appealed decision in the main case, Civil Case No. 35966, then pending before
the Court of Appeals. Escobar filed its Comment with a Motion to Dismiss Appeal allegedly for Hanils failure to file its
brief.

On April 30, 1985, the appellate court issued a Resolution denying Hanils Application for Judgment Against the
Attachment Bond together with its Motion to Defer Filing of Appellants Brief. It also dismissed Hanils appeal. Hanils
Motion for Reconsideration was denied on June 20, 1985. Hanil promptly sought relief from said April 30 and June 20
Resolutions by filing with this Court a Petition for Certiorari, Mandamus and Prohibition with Mandatory Injunction. In a
decision rendered on September 30, 1986, we reversed and set aside the assailed Resolutions. We also directed the
Court of Appeals to conduct hearings on the application for damages against the bond filed by Hanil and to reinstate the
appeal.

Upon reinstatement of the appeal, the appellate court conducted hearings on the application for judgment against the
attachment bond. On August 23, 1993, it promulgated the herein contested Decision, 3 the decretal portion of which
reads as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. REVERSING and SETTING ASIDE the appealed decision in Civil Case No. 35966;
2. DISMISSING the complaint in Civil Case No. 35966;
3. ORDERING the plaintiff-appellee (Escobar) to pay defendant-appellant under the counterclaim in Civil Case No. 35966
the following sums of money:
a. FIFTY THOUSAND (P50,000.00) PESOS, for and as attorneys fees;
b. TWENTY THOUSAND (P20,000.00) PESOS in the concept of nominal damages;
4. ORDERING plaintiff-appellee and bondsman Sanpiro to jointly and severally pay defendant-appellant under the
attachment bond the total sum of FIFTY-SEVEN THOUSAND FIVE HUNDRED SEVEN AND 90/100 (P57,507.90) PESOS as
and for attorneys fees and litigation expenses; and
5. ORDERING plaintiff-appellee to pay bondsman Sanpiro by way of reimbursement under their Indemnity Agreement
the sum of FIFTY-SEVEN THOUSAND FIVE HUNDRED SEVEN AND 90/100 (P57,507.90) PESOS.
Costs against plaintiff-appellee. cräläwvirtualibräry
Hanil and Escobar filed their own respective Motions for Reconsideration, which were both denied in a Resolution 5
dated January 5, 1994.

On February 15, 1994, Hanil filed before this court a Petition for Review on Certiorari under Rule 45 assailing the amount
of damages awarded to it. This was docketed as G.R. No. 113176, entitled Hanil Development Co., Ltd., Petitioner, vs.
Court of Appeals and M.R. Escobar Explosive Engineers, Respondents. On February 24, 1994, Escobar likewise filed its
12
own Petition for Review on Certiorari under Rule 45, docketed as G.R. No. 113342, entitled M.R. Escobar Explosive
Engineers, Inc., Petitioner, vs. Court of Appeals and Hanil Development Co., Ltd., Respondents.

In G.R. No. 113176, petitioner Hanil raises the following grounds:

I. THE U.S.$3,000.00 INCURRED AND SPENT BY PETITIONER IN TAKING THE DEPOSITION OF ONE OF ITS WITNESSES
SHOULD HAVE BEEN ADJUDGED TO BE PAID BY THE PRIVATE RESPONDENT.

II. THE PETITIONER SHOULD HAVE BEEN AWARDED WITH TEMPERATE DAMAGES OF P5,000,000.00 IN LIEU OF
ACTUAL DAMAGES, INSTEAD OF THE SMALLER SUM OF P20,000.00 IN NOMINAL DAMAGES.

III. THE PETITIONER SHOULD HAVE BEEN AWARDED MORAL DAMAGES IN THE AMOUNT OF P1,000,000.00.

IV. THE PRIVATE RESPONDENT SHOULD BE MADE TO PAY THE PETITIONER EXEMPLARY DAMAGES IN THE AMOUNT
OF P5,000,000.00 IN ORDER TO BE AN EFFECTIVE DETERRENT TO MALEVOLENT, FRAUDULENT AND MALICIOUS
SUIT AND APPLICATION FOR ATTACHMENT AND OTHER SIMILAR ACTS;

V. THE AWARDED ATTORNEYS FEES FOR THE PRINCIPAL ACTION SHOULD HAVE BEEN INCREASED FROM P50,000.00
TO P500,000.00. cräläwvirtualibräry

In G. R. No. 113342, petitioner Escobar makes the following assignment of errors:

I.
THE COURT OF APPEALS ERRED GRAVELY IN NOT AFFIRMING THE TRIAL COURTS 16 APRIL 1982 DECISION IN
PETITIONERS FAVOR.
II.
THE COURT OF APPEALS FURTHER ERRED GRAVELY IN AWARDING DAMAGES AND ATTORNEYS FEES TO PRIVATE
RESPONDENT, AS WELL AS IN AWARDING ADDITIONAL ATTORNEYS FEES AND INJUNCTION BOND PREMIUM ON
PRIVATE RESPONDENTS APPLICATION FOR DAMAGES ON ATTACHMENT.
III.
THEREFORE THE COURT OF APPEALS ERRED IN NOT DISMISSING THE PETITION IN CA-G.R. NO. 05055 OUTRIGHT
FOR BEING UTTERLY DEVOID OF MERIT.7cräläwvirtualibräry

We will jointly discuss the related issues forwarded by the parties, first, in respect of the appeal from the Decision of the
CFI in Civil Case No. 35966, before ruling on the issues advanced anent the application for judgment on the attachment
bond.

Re: Appeal from the Decision of the CFI in Civil Case No. 35966

In its petition in G.R. No. 113342, Escobar claims that the Court of Appeals erroneously relied on sub-paragraph (b) of
paragraph 9 of the Sub-Contract Agreement. It maintains that all the blasting works it performed in areas B-2, B-3 and C-
1 were for and on solid rock areas. It emphasizes that since Hanil was paid by the MPWH based on the cross-section
system in these areas, it should likewise be paid in the same manner.

The contention fails to impress. Just because the MPWH paid Hanil using the cross-section approach for the blastings in
the contested areas does not necessarily mean that Hanil should in turn compensate Escobar based on the same
technique of computation. Apropos is the observation made by Mr. N.A. Vaitialingam, the Project Manager of the
engineering consultants Sauti, Certeza & F.F. Cruz for the 200-kilometer Iligan-Butuan highway construction project. In a
letter dated December 10, 1979 addressed to the Honorable Minister of the MPWH, he declared the following:

These payments are made subject to the specification under Clause 105-3-2 Rock Material of the General Specifications,
copy attached. Therefore it is not possible to ascertain the exact volume of rock or boulders blasted by the sub-
contractor from the volume paid to the contractor because the rock blasted may be, for example, 60% or 65 % of the
volume paid in the cross-section. Also very often boulders are pushed by the bull-dozers without blasting.

Thus it is desired that the main contractor (Hanil) and the sub-contractor should come to a mutual agreement on the
subject.

The import of this observation was correctly interpreted by the Court of Appeals, thus:

13
What Mr. N.A. Vaitialingam simply means is that the cross-section computation for payment by the MPWH to appellant
(Hanil), as contractor, could not be in turn used as an accurate basis for payment by appellant to appellee (Escobar), as
sub-contractor, not only because the rock blasted in each cross-section might have been (sic) consisted only of 60% or
65% solid rock but also because very often blasting was no longer necessary since boulders were just removed by
bulldozers. The truth of Mr. Vaitialingams statement is confirmed by appellees own documentary evidence which show
that rock blasting and boulders comprised a major portion of the work done in segment B-2 (Exh. B-3) and segment B-3
(Exh. B-2) and that the work in segment C-1 (Exh. B-1) consisted entirely of blasting and dozing. Moreover, appellees
Exhibits B-1, B-2 and B-3 clearly evince that In all cases there were overburden of earth of varying depths on top of rock
and boulders. In other words, payment to appellee as shown by cross-section under Sub-paragraph (a) of Paragraph 9 of
the questioned document was obviously inapplicable for not being based on an actual and accurate method of
measurement. tualibräry

This letter (Exhibit H) is part of the evidence of Escobar. It cannot impugn its own evidence. räläwvirtualibräry

To be sure, what governs the contractual relation between Escobar and Hanil are the stipulations contained in their Sub-
contract Agreement. A contract is the law between the parties and where there is nothing in it which is contrary to law,
morals, good customs, public policy or public good, its validity must be sustained.

The express terms of the agreement are clear as day to necessitate any interpretation. For the cross-section approach
under paragraph 9(a) to apply, it is imperative to establish that the rocks blasted were solid in nature. Otherwise, the
joint survey procedure will be followed. Escobar failed to prove the nature of the rocks it blasted in the disputed areas. It
did not introduce in evidence object samples of the rocks in the area. Neither did it present photographs, both wide and
close-up angles of representative portions of the said areas that it worked on, let alone photographs of typical clusters
of the rock it blasted. räläwvirtualibräry

That the cross-section system was not at all followed by the parties is further shown by Escobars act in the first seven
months of the two-year agreement when it received monthly payments computed on the basis of the joint survey
method. During the period from January to July 1977, its monthly billings were fixed after a joint survey of the estimated
quantity of rocks before blasting and another joint assessment of the actual volume of rocks blasted by its own
engineers and those of Hanil, which is in accordance with Paragraph 9(b), not 9(a), of their Sub-contract Agreement. Its
belated assertion that these monthly collections were understood to be mere partial compensation, subject to
adjustment after applying the cross-section approach, appears to be an afterthought. If the claim is true, it could have
easily indicated or annotated the condition in the billings that it sent Hanil and the receipts for the payment. Since
Escobar accepted payment for a considerable period of time under the joint survey method, it cannot later be allowed
to assume an inconsistent position by invoking the cross-section approach.

We now discuss the merit of Hanils petition. For its part, it seeks an increase in the grant of nominal damages and
attorneys fees. It also prays for additional awards of moral and exemplary damages.

Hanils plea for additional amount in the form of temperate damages in lieu of the nominal damages awarded to it must
be denied. We agree with the appellate courts ruling that the amount of twenty thousand pesos (P20,000.00) is just.
Hanil failed to prove the actual value of pecuniary injury which it sustained as a consequence of Escobars institution of
an unfounded civil suit. The testimony of one of its witnesses presented in the CFI, to the effect that the filing of the
complaint affected Hanils reputation and that it affected the management and engineers working in the site, 121 is not
enough proof. The institution of the suit, unfounded though it may be, does not always lead to pecuniary loss as to
warrant an award of actual or temperate damages. The link between the cause (the suit) and the effect (the loss) must
be established by the required proof.

So, too, must its demand for payment of moral damages fail. The rule is that moral damages can not be granted in favor
of a corporation. Being an artificial person and having existence only in legal contemplation, a corporation has no
feelings, no emotions, no senses. It cannot, therefore, experience physical suffering, mental anguish, fright, serious
anxiety, wounded feelings or moral shock or social humiliation, which can be suffered only by one having a nervous
system. äwvirtualibräry

Hanils prayer for exemplary damages must likewise be denied. It must be remembered that this kind of damages cannot
be recovered as a matter of right. Its allowance rests in the sound discretion of the court, and only upon a showing of its
legal foundation. Under the Civil Code, the claimant must first establish that he is entitled to moral, temperate,
compensatory or liquidated damages before it may be imposed in his favor. Hanil failed to do so, hence, it cannot claim
exemplary damages.

14
We hold, however, that an increase in the grant of attorneys fees from fifty thousand pesos (P50,000.00) to one hundred
fifty thousand pesos (P150,000.00) is in order. Although the original complaint lodged with the CFI was merely for
collection of a sum of money with damages, involving as it did modest legal issues, that complaint had in reality
generated several incidents during the close to twenty years that this case was under litigation. Twice, Hanil filed
Petitions for Certiorari with the Court of Appeals. Once, it elevated the case to this Court questioning the dismissal of the
appeal by the appellate court. Then, after reinstatement of the appeal, it had to present and defend its case not only for
the appeal but also for its application on the attachment bond. And now, Hanil has to contend with Escobars Petition in
G.R. No. 113342, even as it concerns itself with its own Petition in G.R. No. 113176. In fine, taking into account the over-
all factual environment upon which this case proceeded, we find the award of P50,000.00 insufficient and hereby
augment it to P150,000.00.

Re: Application for Judgment on the Attachment Bond

Apropos the Application for Judgment on the Attachment Bond, Escobar claims in its petition that the award of
attorneys fees and injunction bond premium in favor of Hanil is to law and jurisprudence. It contends that no malice or
bad faith may be imputed to it in procuring the writ.

Escobars protestation is now too late in the day. The question of the illegality of the attachment and Escobars bad faith
in obtaining it has long been settled in one of the earlier incidents of this case. The Court of Appeals, in its decision
rendered on February 3, 1983 in C.A.-G.R. No. SP-14512, voided the challenged writ, having been issued with grave
abuse of discretion. Escobars bad faith in procuring the writ cannot be doubted. Its Petition for the Issuance of
Preliminary Attachment made such damning allegations that: Hanil was already able to secure a complete release of its
final collection from the MPWH; it has moved out some of its heavy equipments for unknown destination, and it may
leave the country anytime. Worse, its Ex Parte Motion to Resolve Petition alleged that after personal verification by
(Escobar) of (Hanils) equipment in Cagayan de Oro City, it appears that the equipments were no longer existing from
their compound. All these allegations of Escobar were found to be totally baseless and untrue. So manifest was their
baselessness that Escobar did not even submit a reply to refute the assertions Hanil made in its Opposition to the
Petition for the Issuance of Preliminary Attachment. Nor did it attempt to negate the same assertions of Hanil in its
Motion for Reconsideration. Instead, it advanced the evasive claim that the Motion has become moot and academic on
the ground that the writ of attachment has already been executed.

We therefore hold that on the basis of the evidence presented, Hanil is entitled to temperate damages in the amount of
five hundred thousand pesos (P500,000.00). As a consequence of the illegal writ, Hanil suffered the following damages:
(1) some of the checks it issued were dishonored after its bank accounts were garnished; (2) its operation stopped
temporarily for five days because it was prevented from using its equipments and machineries; and (3) its goodwill,
reputation and commercial standing as one of the top multi-national construction firms in Asia was tarnished.

In light of Escobars bad faith in procuring the attachment and garnishment orders, we grant the additional award of
exemplary damages in the amount of one million pesos (P1,000,000.00) by way of example or correction for public
good. This should deter parties in litigations from resorting to baseless and preposterous allegations to obtain writs of
attachments from gullible judges. The misuse of our legal processes cannot be tolerated especially if they victimize
persons and institutions of foreign nationality doing legitimate business in our jurisdiction. While as a general rule, the
liability on the attachment bond is limited to actual (or in some cases, temperate or nominal) damages, exemplary
damages may be recovered where the attachment was established to be maliciously sued out. läwvirtualibräry

We, however, delete the award of attorneys fees for the litigation of the application for damages against the bond since
we have already included the same in our grant of attorneys fees in the main action concerning the appeal.

In other aspects, we sustain the assailed Decision and Resolution of the Court of Appeals. The claim of Hanil that as part
of the cost of suit, Escobar should be made to pay three thousand U.S. dollars (U.S.$3,000.00) for the money it spent in
taking the deposition upon written interrogatories of one of its witnesses, Engr. Chan Woo Park, in South Korea on
November 18, 1988 is bereft of merit. The case law on this issue is now settled, viz.:

(T)he expenses of taking depositions are allowable as costs only if it appears to the court: (1) that they were reasonably
necessary; (2) the burden of so demonstrating is upon the party claiming such expenses as costs; (3) whether that
burden is met is within the sound discretion of the trial court; and (4) its ruling thereon is presumed to be correct and
will not be disturbed unless it is so unreasonable as to manifest a clear abuse of discretion.

15
Whether the taking of a deposition was reasonably necessary to the protection of the partys interests as to entitle it to
reimbursement of expenses is a question primarily for the lower court to decide based on all the facts and circumstances
of the case. On this score, the Court of Appeals (which heard the Application for Damages) disallowed Hanils claim since
the deposition was merely corroborative in nature and, therefore, superfluous. 17 We agree. A cursory reading of the
transcript of deposition of Engr. Chan will readily reveal that his testimony only corroborated that of Hanils earlier
witness, Mr. Chang Yong Ahn, its Operations Manager, who took the stand on February 26, 1988. The two testimonies
dealt with the same topic: the illegal writ of attachment on Hanils equipments and garnishment of its funds, and the
pecuniary loss it suffered as a consequence thereof. In fact, despite the Court of Appealss own conclusion about the
superfluity of the deposition, it still decided in favor of Hanil based on the other undisputed evidence on record.

In the same vein, we sustain the grant of seven thousand five hundred seven pesos and ninety centavos (P7,507.90) as
injunction bond premium for being reasonable under the premises.

Finally, we find and so hold that, as between Escobar and its bondsman Sanpiro, the former is liable to the latter by
virtue of their Indemnity Agreement 181 for the damages the subject attachment bond is herein made to answer.
However, since the extent of its liability will be determined only by the terms and conditions of the contract of
suretyship, 19 it can only be held answerable up to the amount of one million three hundred forty-one thousand, seven
hundred twenty-seven pesos and forty centavos (P1,341,727.40).

IN VIEW WHEREOF, the assailed Decision and Resolution of the Court of Appeals are hereby modified as follows:

1. ORDERING Escobar to pay Hanil under the counterclaim in Civil Case No. 35966 the following sums of money:
a. TWENTY THOUSAND PESOS (P20,000.00) as nominal damages;
b. ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00) for and as attorneys fees.
2. ORDERING Escobar, and bondsman Sanpiro to jointly and severally pay with it up to the extent of one million three
hundred forty-one thousand seven hundred twenty-seven pesos and forty centavos (P1,341,727.40), to pay Hanil under
the attachment bond the following sums of money:
a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) as temperate damages;
b. ONE MILLION PESOS (P1,000,000.00) as exemplary damages;
c. SEVEN THOUSAND FIVE HUNDRED SEVEN PESOS AND NINETY CENTAVOS (P7,507.90) for the Injunction Bond
Premium.

3. ORDERING Escobar to pay Hanil the remainder of the amount of temperate, exemplary and bond premium damages -
which cannot be fully covered by the attachment bond - in the sum of ONE HUNDRED SIXTY-FIVE THOUSAND SEVEN
HUNDRED EIGHTY PESOS AND FIFTY CENTAVOS (P165,780.50).

4. ORDERING Escobar to pay bondsman Sanpiro by way of reimbursement under their Indemnity Agreement the sum of
ONE MILLION THREE HUNDRED FORTY-ONE THOUSAND SEVEN HUNDRED TWENTY-SEVEN PESOS AND FORTY CENTAVOS
(P1,341,727.40). Costs against Escobar. SO ORDERED.

5. G.R. No. L-32409. February 27, 1971. BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON.
JUDGE VIVENCIO M. RUIZ Respondents.

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary mandatory and
prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws of
the Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-70
issued by respondent Judge on February 25, 1970; to order respondents to desist from enforcing the same and/or keeping the
documents, papers and effects seized by virtue thereof, as well as from enforcing the tax assessments on petitioner
corporation alleged by petitioners to have been made on the basis of the said documents, papers and effects, and to order the
return of the latter to petitioners. We gave due course to the petition but did not issue the writ of preliminary injunction
prayed for therein.

The pertinent facts of this case, as gathered from record, are as follows: chanrob1es virtual 1aw libr

On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to respondent
Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of Section 46(a) of the
National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and
209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for
search warrant which was attached to the letter.

16
In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent Arturo Logronio,
went to the Court of First Instance of Rizal. They brought with them the following papers: respondent Vera’s aforesaid letter-
request; an application for search warrant already filled up but still unsigned by respondent De Leon; an affidavit of
respondent Logronio subscribed before respondent De Leon; a deposition in printed form of respondent Logronio already
accomplished and signed by him but not yet subscribed; and a search warrant already accomplished but still unsigned by
respondent Judge.

At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to
take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge was informed
that the depositions had already been taken. The stenographer, upon request of respondent Judge, read to him her
stenographic notes; and thereafter, respondent Judge asked respondent Logronio to take the oath and warned him that if his
deposition was found to be false and without legal basis, he could be charged for perjury. Respondent Judge signed
respondent de Leon’s application for search warrant and respondent Logronio’s deposition, Search Warrant No. 2-M-70 was
then sign by respondent Judge and accordingly issued.

Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant petitioners at the
offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners’ lawyers protested the search on the ground that
no formal complaint or transcript of testimony was attached to the warrant. The agents nevertheless proceeded with their
search which yielded six boxes of documents.

On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant be
quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the search
warrant be declared null and void, and that the respondents be ordered to pay petitioners, jointly and severally, damages and
attorney’s fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an answer to the petition. After hearing,
the court, presided over by respondent Judge, issued on July 29, 1970, an order dismissing the petition for dissolution of the
search warrant. In the meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on petitioner
corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the documents thus seized. Petitioners came to
this Court.

The petition should be granted for the following reasons: chanrob1es virtual 1aw library

1. Respondent Judge failed to personally examine the complainant and his witness.

The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court are: jgc:chanrobles.com.ph

"(3) The right of the people to be secure in their persons, houses, papers and effects against unreasonable searches and
seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after
examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the
place to be searched, and the persons or things to be seized." (Art. III, Sec. 1, Constitution.)

"SEC. 3. Requisites for issuing search warrant. — A search warrant shall not issue but upon probable cause in connection with
one specific offense to be determined by the judge or justice of the peace after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or
things to be seized.

No search warrant shall issue for more than one specific offense.

SEC. 4. Examination of the applicant. — The judge or justice of the peace must, before issuing the warrant, personally examine
on oath or affirmation the complainant and any witnesses he may produce and take their depositions in writing, and attach
them to the record, in addition to any affidavits presented to him." (Rule 126, Revised Rules of Court.)

The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, par. 3, of the Constitution,
and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be conducted by the judge himself and not by others. The
phrase "which shall be determined by the judge after examination under oath or affirmation of the complainant and the
witnesses he may produce," appearing in the said constitutional provision, was introduced by Delegate Francisco as an
amendment to the draft submitted by the Sub-Committee of Seven.

In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant (respondent De
Leon) and his witness (respondent Logronio). While it is true that the complainant’s application for search warrant and the
witness’ printed-form deposition were subscribed and sworn to before respondent Judge, the latter did not ask either of the
two any question the answer to which could possibly be the basis for determining whether or not there was probable cause
against herein petitioners. Indeed, the participants seem to have attached so little significance to the matter that notes of the

17
proceedings before respondent Judge were not even taken.

The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant was thus limited to
listening to the stenographer’s readings of her notes, to a few words of warning against the commission of perjury, and to
administering the oath to the complainant and his witness. This cannot be consider a personal examination. If there was an
examination at all of the complainant and his witness, it was the one conducted by the Deputy Clerk of Court. But, as stated,
the Constitution and the rules require a personal examination by the judge. It was precisely on account of the intention of the
delegates to the Constitutional Convention to make it a duty of the issuing judge to personally examine the complainant and
his witnesses that the question of how much time would be consumed by the judge in examining them came up before the
Convention, as can be seen from the record of the proceedings quoted above. The reading of the stenographic notes to
respondent Judge did not constitute sufficient compliance with the constitutional mandate and the rule; for by that manner
respondent Judge did not have the opportunity to observe the demeanor of the complainant and his witness, and to
propound initial and follow-up questions which the judicial mind, on account of its training, was in the best position to
conceive. These were important in arriving at a sound inference on the all-important question of whether or not there was
probable cause.

2. The search warrant was issued for more than one specific offense.

Search Warrant No. 2-M-70 was issued for violation of Sec. 46(a) of the National Internal Revenue Code in relation to all other
pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The question is: Was the said search warrant issued
"in connection with one specific offense," as required by Sec. 3, Rule 126?

To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to above. Thus we find
the following:chanrob1es virtual 1aw library

Sec. 46(a) requires the filing of income tax returns by corporations.

Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the information required under
the Tax Code.

Sec. 208 penalizes" any person who distills, rectifies, repacks, compounds, or manufactures any article subject to a specific tax,
without having paid the privilege tax therefore, or who aids or abets in the conduct of illicit distilling, rectifying, compounding,
or illicit manufacture of any article subject to specific tax, and provides that in the case of a corporation, partnership, or
association, the official and/or employee who caused the violation shall be responsible.

Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output removed, or to pay the tax
due thereon.

The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the violation of the
filing of income tax returns, which are interrelated. The second is the violation withholding of income taxes at source. The
third is the violation unlawful pursuit of business or occupation; and the fourth is the violation failure to make a return of
receipts, sales, business or gross value of output actually removed or to pay the tax due thereon.

Respondents argue that Stonehill, Et. Al. v. Diokno, is not applicable, because there the search warrants were issued for
"violation of Central Bank Laws, Internal Revenue (Code) and Revised Penal Code;" whereas, here Search Warrant No 2-M-70
was issued for violation of only one code, i.e., the National Internal Revenue Code. The distinction more apparent than real,
because it was precisely on account of the Stonehill incident, which occurred sometime before the present Rules of Court took
effect on January 1, 1964, that this Court amended the former rule by inserting therein the phrase "in connection with one
specific offense," and adding the sentence "No search warrant shall issue for more than one specific offense," in what is now
Sec. 3, Rule 126. Thus we said in Stonehill: jgc:chanrobles.com.ph

"Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this Court
deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that ‘a search warrant shall not issue but upon
probable cause in connection with one specific offense.’ Not satisfied with this qualification, the Court added thereto a
paragraph, directing that ‘no search warrant shall issue for more than one specific offense.’"

3. The search warrant does not particularly describe the things to be seized.

The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in this manner: jgc:chanrobles.com.ph

Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements books, customers
ledgers); receipts for payments received; certificates of stocks and securities; contracts, promissory notes and deeds of sale;
18
telex and coded messages; business communications, accounting and business records; checks and check stubs; records of
bank deposits and withdrawals; and records of foreign remittances, covering the years 1966 to 1970." cralaw virtua1aw library

The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the Revised
Rules of Court, that the warrant should particularly describe the things to be seized.

In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion, said: jgc:chanrobles.com.ph

The grave violation of the Constitution made in the application for the contested search warrants was compounded by the
description therein made of the effects to be searched for and seized, to wit: chanrob1es virtual 1aw library

‘Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or paper showing all business transactions including disbursement receipts, balance
sheets and related profit and loss statements.’

Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners
herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of the
petitioners and the aforementioned corporations, whatever their nature, thus openly contravening the explicit command of
our Bill of Rights — that the things to be seized be particularly described — as well as tending to defeat its major objective:
the elimination of general warrants. cralaw virtua1aw library

While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said warrant nevertheless tends
to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the language used therein is so
all-embracing as to include all conceivable records of petitioner corporation, which, if seized, could possibly render its
business inoperative.

In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to explain the purpose of the
requirement that the warrant should particularly describe the place to be searched and the things to be seized, to wit: jgc:chanrobles.com.ph

"Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search warrant should particularly
describe the place to be searched and the things to be seized. The evident purpose and intent of this requirement is to limit
the things to be seized to those, and only those, particularly described in the search warrant — to leave the officers of the law
with no discretion regarding what articles they shall seize, to the end that ‘unreasonable searches and seizures’ may not be
made, — that abuses may not be committed. That this is the correct interpretation of this constitutional provision is borne out
by American authorities." cralaw virtua1aw library

The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in this case.

A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the
circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the description expresses a conclusion of fact —
not of law — by which the warrant officer may be guided in making the search and seizure (idem., dissent of Abad Santos, J.,);
or when the things described are limited to those which bear direct relation to the offense for which the warrant is being
issued (Sec. 2, Rule 126, Revised Rules of Court). The herein search warrant does not conform to any of the foregoing tests. If
the articles desired to be seized have any direct relation to an offense committed, the applicant must necessarily have some
evidence, other than those articles, to prove the said offense; and the articles subject of search and seizure should come in
handy merely to strengthen such evidence. In this event, the description contained in the herein disputed warrant should
have mentioned, at least, the dates, amounts, persons, and other pertinent data regarding the receipts of payments,
certificates of stocks and securities, contracts, promissory notes, deeds of sale, messages and communications, checks, bank
deposits and withdrawals, records of foreign remittances, among others, enumerated in the warrant.

Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration of respondent
Judge’s order of July 29, 1970. The contention is without merit. In the first place, when the questions raised before this Court
are the same as those which were squarely raised in and passed upon by the court below, the filing of a motion for
reconsideration in said court before certiorari can be instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al. v.
Ago, Et Al., 108 Phil., 905). In the second place, the rule requiring the filing of a motion for reconsideration before an
application for a writ of certiorari can be entertained was never intended to be applied without considering the circumstances.
(Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar time is of the essence in view of the tax assessments sought to be
enforced by respondent officers of the Bureau of Internal Revenue against petitioner corporation, On account of which
immediate and more direct action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does
not apply where, as in this case, the deprivation of petitioners’ fundamental right to due process taints the proceeding against
them in the court below not only with irregularity but also with nullity. (Matute v. Court of Appeals, Et Al., supra.)

It is next contended by respondents that a corporation is not entitled to protection against unreasonable search and seizures.
19
Again, we find no merit in the contention.

"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a
violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional powers,
cannot refuse to produce the books and papers of such corporation, we do not wish to be understood as holding that a
corporation is not entitled to immunity, under the 4th Amendment, against unreasonable searches and seizures. A
corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organizing
itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be taken
without compensation. It can only be proceeded against by due process of law, and is protected, under the 14th Amendment,
against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)

"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a corporation, the
ground that it was not privileged from producing its books and papers. But the rights of a corporation against unlawful search
and seizure are to be protected even if the same result might have been achieved in a lawful way." (Silverthorne Lumber
Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.)

In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to object against
unreasonable searches and seizures, thus: jgc:chanrobles.com.ph

"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested
warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or
the interest of each of them in said corporations, whatever, the offices they hold therein may be. Indeed, it is well settled that
the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection
to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently, petitioners
herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices
and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers
in proceedings against them in their individual capacity. cralaw virtua

In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects were
searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong, and
whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different
footing from the corporations in Stonehill.

The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by petitioners — at least partly — as
in effect admitted by respondents — based on the documents seized by virtue of Search Warrant No. 2-M-70. Furthermore,
the fact that the assessments were made some one and one-half months after the search and seizure on February 25, 1970, is
a strong indication that the documents thus seized served as basis for the assessments. Those assessments should therefore
not be enforced.

PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent Judge is
declared null and void; respondents are permanently enjoined from enforcing the said search warrant; the documents, papers
and effects seized thereunder are ordered to be returned to petitioners; and respondent officials the Bureau of Internal
Revenue and their representatives are permanently enjoined from enforcing the assessments mentioned in Annex "G" of the
present petition, as well as other assessments based on the documents, papers and effects seized under the search warrant
herein nullified, and from using the same against petitioners in any criminal or other proceeding. No pronouncement as to
costs.

6. G.R. No. L-31061 August 17, 1976. SULO NG BAYAN INC., plaintiff-appellant, vs. GREGORIO ARANETA, INC.,
defendants-appellees.

The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an action in behalf of its
individual members for the recovery of certain parcels of land allegedly owned by said members; for the nullification of
the transfer certificates of title issued in favor of defendants appellees covering the aforesaid parcels of land; for a
declaration of "plaintiff's members as absolute owners of the property" and the issuance of the corresponding certificate
of title; and for damages.

On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance
of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-appellees to recover the ownership and
possession of a large tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250 square meters, more
or less, registered under the Torrens System in the name of defendants-appellees' predecessors-in-interest. The

20
complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and existing under
the laws of the Philippines, with its principal office and place of business at San Jose del Monte, Bulacan; that its
membership is composed of natural persons residing at San Jose del Monte, Bulacan; that the members of the plaintiff
corporation, through themselves and their predecessors-in-interest, had pioneered in the clearing of the fore-
mentioned tract of land, cultivated the same since the Spanish regime and continuously possessed the said property
openly and public under concept of ownership adverse against the whole world; that defendant-appellee Gregorio
Araneta, Inc., sometime in the year 1958, through force and intimidation, ejected the members of the plaintiff
corporation for their possession of the aforementioned vast tract of land; that upon investigation conducted by the
members and officers of plaintiff corporation, they found out for the first time in the year 1961 that the land in question
"had been either fraudelently or erroneously included, by direct or constructive fraud, in Original Certificate of Title No.
466 of the Land of Records of the province of Bulacan", issued on May 11, 1916, which title is fictitious, non-existent and
devoid of legal efficacy due to the fact that "no original survey nor plan whatsoever" appears to have been submitted as
a basis thereof and that the Court of First Instance of Bulacan which issued the decree of registration did not acquire
jurisdiction over the land registration case because no notice of such proceeding was given to the members of the
plaintiff corporation who were then in actual possession of said properties; that as a consequence of the nullity of the
original title, all subsequent titles derived therefrom, such as Transfer Certificate of Title No. 4903 issued in favor of
Gregorio Araneta and Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate of Title No. 7573 in
the name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of, the National Waterworks
& Sewerage Authority (NWSA), Transfer Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and
another transfer certificate of title in the name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant
consequently prayed (1) that Original Certificate of Title No. 466, as well as all transfer certificates of title issued and
derived therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said
property and that the corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio
Araneta, Inc. be ordered to pay to plaintiff the damages therein specified.

On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended complaint on
the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription
and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds.
Appellee National Waterworks & Sewerage Authority did not file any motion to dismiss. However, it pleaded in its
answer as special and affirmative defenses lack of cause of action by the plaintiff-appellant and the barring of such
action by prescription and laches.

During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966, praying that the
case be transferred to another branch of the Court of First Instance sitting at Malolos, Bulacan, According to defendants-
appellees, they were not furnished a copy of said motion, hence, on October 14, 1966, the lower court issued an Order
requiring plaintiff-appellant to furnish the appellees copy of said motion, hence, on October 14, 1966, defendant-
appellant's motion dated October 7, 1966 and, consequently, prayed that the said motion be denied for lack of notice
and for failure of the plaintiff-appellant to comply with the Order of October 14, 1966. Similarly, defendant-appellee
paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that it also did not receive a copy
of the afore-mentioned of appellant. On January 24, 1967, the trial court issued an Order dismissing the amended
complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the court had no
jurisdiction to issue the Order of dismissal, because its request for the transfer of the case from the Valenzuela Branch of
the Court of First Instance to the Malolos Branch of the said court has been approved by the Department of Justice; that
the complaint states a sufficient cause of action because the subject matter of the controversy in one of common
interest to the members of the corporation who are so numerous that the present complaint should be treated as a
class suit; and that the action is not barred by the statute of limitations because (a) an action for the reconveyance of
property registered through fraud does not prescribe, and (b) an action to impugn a void judgment may be brought any
time. This motion was denied by the trial court in its Order dated February 22, 1967. From the afore-mentioned Order of
dismissal and the Order denying its motion for reconsideration, plaintiff-appellant appealed to the Court of Appeals.

On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal but only
questions of law and jurisdiction, certified this case to this Court for resolution of the legal issues involved in the
controversy.
I
Appellant contends, as a first assignment of error, that the trial court acted without authority and jurisdiction in
dismissing the amended complaint when the Secretary of Justice had already approved the transfer of the case to any
one of the two branches of the Court of First Instance of Malolos, Bulacan.
Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the different
branches of the same Court of First Instance. Jurisdiction implies the power of the court to decide a case, while venue
21
the place of action. There is no question that respondent court has jurisdiction over the case. The venue of actions in the
Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying of venue is not left to
the caprice of plaintiff, but must be in accordance with the aforesaid provision of the rules. 2 The mere fact that a
request for the transfer of a case to another branch of the same court has been approved by the Secretary of Justice
does not divest the court originally taking cognizance thereof of its jurisdiction, much less does it change the venue of
the action. As correctly observed by the trial court, the indorsement of the Undersecretary of Justice did not order the
transfer of the case to the Malolos Branch of the Bulacan Court of First Instance, but only "authorized" it for the reason
given by plaintiff's counsel that the transfer would be convenient for the parties. The trial court is not without power to
either grant or deny the motion, especially in the light of a strong opposition thereto filed by the defendant. We hold
that the court a quo acted within its authority in denying the motion for the transfer the case to Malolos
notwithstanding the authorization" of the same by the Secretary of Justice.

II
Let us now consider the substantive aspect of the Order of dismissal. In dismissing the amended complaint, the court a
quo said:

The issue of lack of cause of action raised in the motions to dismiss refer to the lack of personality of plaintiff to file the
instant action. Essentially, the term 'cause of action' is composed of two elements: (1) the right of the plaintiff and (2)
the violation of such right by the defendant. For these reasons, the rules require that every action must be prosecuted
and defended in the name of the real party in interest and that all persons having an interest in the subject of the action
and in obtaining the relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people
whose rights were alleged to have been violated by being deprived and dispossessed of their land are the members of
the corporation and not the corporation itself. The corporation has a separate. and distinct personality from its
members, and this is not a mere technicality but a matter of substantive law. There is no allegation that the members
have assigned their rights to the corporation or any showing that the corporation has in any way or manner succeeded
to such rights. The corporation evidently did not have any rights violated by the defendants for which it could seek
redress. Even if the Court should find against the defendants, therefore, the plaintiff corporation would not be entitled
to the reliefs prayed for, which are recoveries of ownership and possession of the land, issuance of the corresponding
title in its name, and payment of damages. Neither can such reliefs be awarded to the members allegedly deprived of
their land, since they are not parties to the suit. It appearing clearly that the action has not been filed in the names of
the real parties in interest, the complaint must be dismissed on the ground of lack of cause of action.
Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the amended
complaint.

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be
considered as separate and apart from the individual stockholders or members who compose it, and is not affected by
the personal rights, obligations and transactions of its stockholders or members. The property of the corporation is its
property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the
name of the corporation are owned by it as an entity separate and distinct from its members. Conversely, a corporation
ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, "even in the
case of a one-man corporation. The mere fact that one is president of a corporation does not render the property which
he owns or possesses the property of the corporation, since the president, as individual, and the corporation are
separate similarities. Similarly, stockholders in a corporation engaged in buying and dealing in real estate whose
certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the corporation upon
surrender of their stock certificates were considered not to have such legal or equitable title or interest in the land, as
would support a suit for title, especially against parties other than the corporation.

It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons
composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. This
separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is
used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity.

Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, ... the law will regard the corporation as an association of persons, or in the case of two corporations, merge
them into one, the one being merely regarded as part or instrumentality of the other. The same is true where a
corporation is a dummy and serves no business purpose and is intended only as a blind, or an alter ego or business
conduit for the sole benefit of the stockholders. This doctrine of disregarding the distinct personality of the corporation
has been applied by the courts in those cases when the corporate entity is used for the evasion of taxes or when the veil
of corporate fiction is used to confuse legitimate issue of employer-employee relationship, or when necessary for the
protection of creditors, in which case the veil of corporate fiction may be pierced and the funds of the corporation may

22
be garnished to satisfy the debts of a principal stockholder. The aforecited principle is resorted to by the courts as a
measure protection for third parties to prevent fraud, illegality, or injustice.

It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in
question to the plaintiff corporation. Absent any showing of interest, therefore, a corporation, like plaintiff-appellant
herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of
recovering property which belongs to said stockholders or members in their personal capacities.

It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred' by law
upon a person. Evidently, there can be no wrong without a corresponding right, and no breach of duty by one person
without a corresponding right belonging to some other person. Thus, the essential elements of a cause of action are
legal right of the plaintiff, correlative obligation of the defendant, an act or omission of the defendant in violation of the
aforesaid legal right. Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it does
not have any interest in the subject matter of the case which is material and, direct so as to entitle it to file the suit as a
real party in interest.

III
Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to Section 12 of
Rule 3 of the Revised Rules of Court.
In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of the
controversy is one of common or general interest to many persons; and (2) that the parties are so numerous that it is
impracticable to bring them all before the court.

Under the first requisite, the person who sues must have an interest in the controversy, common with those for whom
he sues, and there must be that unity of interest between him and all such other persons which would entitle them to
maintain the action if suit was brought by them jointly.

As to what constitutes common interest in the subject matter of the controversy, it has been explained in Scott v.
Donald thus:

The interest that will allow parties to join in a bill of complaint, or that will enable the court to dispense with the
presence of all the parties, when numerous, except a determinate number, is not only an interest in the question, but
one in common in the subject Matter of the suit; ... a community of interest growing out of the nature and condition of
the right in dispute; for, although there may not be any privity between the numerous parties, there is a common title
out of which the question arises, and which lies at the foundation of the proceedings ... [here] the only matter in
common among the plaintiffs, or between them and the defendants, is an interest in the Question involved which alone
cannot lay a foundation for the joinder of parties. There is scarcely a suit at law, or in equity which settles a Principle or
applies a principle to a given state of facts, or in which a general statute is interpreted, that does not involved a Question
in which other parties are interested.

Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the subject matter
of the controversy, and cannot, therefore, represent its members or stockholders who claim to own in their individual
capacities ownership of the said property. Moreover, as correctly stated by the appellees, a class suit does not lie in
actions for the recovery of property where several persons claim Partnership of their respective portions of the
property, as each one could alleged and prove his respective right in a different way for each portion of the land, so that
they cannot all be held to have Identical title through acquisition prescription.

Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court cannot be
considered as a class suit, it would be unnecessary and an Idle exercise for this Court to resolve the remaining issue of
whether or not the plaintiffs action for reconveyance of real property based upon constructive or implied trust had
already prescribed. ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.

7. G.R. No. 131723 December 13, 2007. MANILA ELECTRIC COMPANY, petitioner, vs. T.E.A.M. ELECTRONICS
CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY, respondents.

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision of the
Court of Appeals (CA) dated June 18, 1997 and its Resolution dated December 3, 1997 in CA-G.R. CV No. 40282 denying
the appeal filed by petitioner Manila Electric Company.

The facts of the case, as culled from the records, are as follows:

23
Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before 1982
and National Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent Technology Electronics Assembly
and Management Pacific Corporation (TPC). On the other hand, petitioner Manila Electric Company (Meralco) is a utility
company supplying electricity in the Metro Manila area.

Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to two
separate contracts denominated as Agreements for the Sale of Electric Energy under the following account numbers:
09341-1322-163 and 09341-1812-13.4 Under the aforesaid agreements, petitioner undertook to supply TEC's building
known as Dyna Craft International Manila (DCIM) located at Electronics Avenue, Food Terminal Complex, Taguig, Metro
Manila, with electric power. Another contract was entered into for the supply of electric power to TEC's NS Building
under Account No. 19389-0900-10.

In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of Lease with
respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the former's DCIM building for a period of five years or
until September 1991. Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a court order,
for repeated violation of the terms and conditions of the lease contract.

On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters installed
at the DCIM building, witnessed by Ultra's6 representative, Mr. Willie Abangan. The two meters covered by account
numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly tampered with and did not register the actual
power consumption in the building. The results of the inspection were reflected in the Service Inspection Reports
prepared by the team.

In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from the
latter the payment of P7,040,401.01 representing its unregistered consumption from February 10, 1986 until September
28, 1987, as a result of the alleged tampering of the meters. TEC received the letters on January 7, 1988. Since Ultra was
in possession of the subject building during the covered period, TEC's Managing Director, Mr. Bobby Tan, referred the
demand letter to Ultra which, in turn, informed TEC that its Executive Vice-President had met with petitioner's
representative. Ultra further intimated that assuming that there was tampering of the meters, petitioner's assessment
was excessive. For failure of TEC to pay the differential billing, petitioner disconnected the electricity supply to the DCIM
building on April 29, 1988.

TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the alleged
tampering but the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 before the Energy
Regulatory Board (ERB) praying that electric power be restored to the DCIM building. The ERB immediately ordered the
reconnection of the service but petitioner complied with it only on October 12, 1988 after TEC paid P1,000,000.00,
under protest. The complaint before the ERB was later withdrawn as the parties deemed it best to have the issues
threshed out in the regular courts. Prior to the reconnection, or on June 7, 1988, petitioner conducted a scheduled
inspection of the questioned meters and found them to have been tampered anew.

Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The inspection
allegedly revealed that the electric meters were not registering the correct power consumption. Petitioner, thus, sent a
letter dated June 18, 1988 demanding payment of P280,813.72 representing the differential billing. TEC denied
petitioner's allegations and claim in a letter dated June 29, 1988. Petitioner, thus, sent TEC another letter demanding
payment of the aforesaid amount, with a warning that the electric service would be disconnected in case of continued
refusal to pay the differential billing. To avert the impending disconnection of electrical service, TEC paid the above
amount, under protest.

On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra before the Regional Trial
Court (RTC) of Pasig. The case was raffled to Branch 162 and was docketed as Civil Case No. 56851. Upon the filing of the
parties' answer to the complaint, pre-trial was scheduled.

At the pre-trial, the parties agreed to limit the issues, as follows:

1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at DCIM Building.
2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount of P7,040,401.01.
3. Whether or not the plaintiff is liable to defendant for exemplary damages.

For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial court
rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The pertinent
portion of the decision reads:

24
WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the defendants as follows:

(1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and severally reimburse plaintiff
TEC actual damages in the amount of ONE MILLION PESOS with legal rate of interest from the date of the filing of this
case on January 19, 1989 until the said amount shall have been fully paid;
(2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual damages with legal rate of
interest also from January 19, 1989;
(3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual damages with interest at
legal rate from January 19, 1989;
(4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount pf P500,000.00;
(5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in the amount of
P200,000.00;
(6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00 Costs against defendant Meralco.
SO ORDERED.

8. G.R. No. 176579 October 9, 2012… HEIRS OF WILSON P. GAMBOA, Petitioners vs. FINANCE

SECRETARY MARGARITO B. TEVES Respondents. PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner
in-Intervention.

This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine Stock
Exchange's (PSE) President, (2) Manuel V. Pangilinan (Pangilinan), (3) Napoleon L. Nazareno (Nazareno ), and
1

( 4) the Securities and Exchange Commission (SEC).

The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalf of the SEC, assailing
the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment on behalf of the State,
declaring expressly that it agrees with the Court's definition of the term "capital" in Section 11, Article XII of the
Constitution. During the Oral Arguments on 26 June 2012, the OSG reiterated its position consistent with the Court's
28 June 2011 Decision.
We deny the motions for reconsideration.

I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.

As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term "capital" in Section 11, Article
XII of the Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will
determine whether Filipinos are masters, or second-class citizens, in their own country. What is at stake here is
whether Filipinos or foreigners will have effective control of the Philippine national economy. Indeed, if ever there is
a legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the
threshold legal issue presented in this case.

Contrary to Pangilinan’s narrow view, the serious economic consequences resulting in the interpretation of the term
"capital" in Section 11, Article XII of the Constitution undoubtedly demand an immediate adjudication of this issue.
Simply put, the far-reaching implications of this issue justify the treatment of the petition as one for mandamus.

In Luzon Stevedoring Corp. v. Anti-Dummy Board, the Court deemed it wise and expedient to resolve the case
although the petition for declaratory relief could be outrightly dismissed for being procedurally defective. There,
appellant admittedly had already committed a breach of the Public Service Act in relation to the Anti-Dummy Law
since it had been employing non- American aliens long before the decision in a prior similar case. However, the
main issue in Luzon Stevedoring was of transcendental importance, involving the exercise or enjoyment of rights,
franchises, privileges, properties and businesses which only Filipinos and qualified corporations could exercise or
enjoy under the Constitution and the statutes. Moreover, the same issue could be raised by appellant in an
appropriate action. Thus, in Luzon Stevedoring the Court deemed it necessary to finally dispose of the case for the
guidance of all concerned, despite the apparent procedural flaw in the petition.

The circumstances surrounding the present case, such as the supposed procedural defect of the petition and the
pivotal legal issue involved, resemble those in Luzon Stevedoring. Consequently, in the interest of substantial justice
and faithful adherence to the Constitution, we opted to resolve this case for the guidance of the public and all
concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."

25
Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been settled and
defined to refer to the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that the
SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino
citizens in the Constitution and various statutes, has consistently adopted this particular definition in its numerous
opinions. Movants point out that with the 28 June 2011 Decision, the Court in effect introduced a "new" definition or
"midstream redefinition" of the term "capital" in Section 11, Article XII of the Constitution. This is egregious error.

For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the term "capital" found
in various economic provisions of the 1935, 1973 and 1987 Constitutions. There has never been a judicial
precedent interpreting the term "capital" in the 1935, 1973 and 1987 Constitutions, until now. Hence, it is patently
wrong and utterly baseless to claim that the Court in defining the term "capital" in its 28 June 2011 Decision
modified, reversed, or set aside the purported long-standing definition of the term "capital," which supposedly refers
to the total outstanding shares of stock, whether voting or non-voting. To repeat, until the present case there has
never been a Court ruling categorically defining the term "capital" found in the various economic provisions of the
1935, 1973 and 1987 Philippine Constitutions.

The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term "capital" as
referring to both voting and non-voting shares (combined total of common and preferred shares) are, in the first
place, conflicting and inconsistent. There is no basis whatsoever to the claim that the SEC and the DOJ have
consistently and uniformly adopted a definition of the term "capital" contrary to the definition that this Court adopted
in its 28 June 2011 Decision.

In DOJ Opinion No. 130, s. 1985, dated 7 October 1985, the scope of the term "capital" in Section 9, Article XIV of
the 1973 Constitution was raised, that is, whether the term "capital" includes "both preferred and common stocks."
The issue was raised in relation to a stock-swap transaction between a Filipino and a Japanese corporation, both
stockholders of a domestic corporation that owned lands in the Philippines. Then Minister of Justice Estelito P.
Mendoza ruled that the resulting ownership structure of the corporation would be unconstitutional because 60% of
the voting stock would be owned by Japanese while Filipinos would own only 40% of the voting stock, although
when the non-voting stock is added, Filipinos would own 60% of the combined voting and non-voting stock. This
ownership structure is remarkably similar to the current ownership structure of PLDT. Minister Mendoza ruled:

Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and preferred) while
the Japanese investors control sixty percent (60%) of the common (voting) shares.

It is your position that since Section 9, Article XIV of the Constitution uses the word "capital," which is construed "to
include both preferred and common shares" and "that where the law does not distinguish, the courts shall not
distinguish."

In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question may not be
constitutionally upheld. While it may be ordinary corporate practice to classify corporate shares into common voting
shares and preferred non-voting shares, any arrangement which attempts to defeat the constitutional purpose
should be eschewed. Thus, the resultant equity arrangement which would place ownership of 60% of the common
(voting) shares in the Japanese group, while retaining 60% of the total percentage of common and preferred shares
in Filipino hands would amount to circumvention of the principle of control by Philippine stockholders that is implicit
in the 60% Philippine nationality requirement in the Constitution

In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9, Article XIV of the
1973 Constitution includes "both preferred and common stocks" treated as the same class of shares regardless of
differences in voting rights and privileges. Minister Mendoza stressed that the 60-40 ownership requirement in favor
of Filipino citizens in the Constitution is not complied with unless the corporation "satisfies the criterion of beneficial
ownership" and that in applying the same "the primordial consideration is situs of control."

On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan Pantaleon & San
Jose, then SEC General Counsel Vernette G. Umali-Paco applied the Voting Control Test, that is, using only the
voting stock to determine whether a corporation is a Philippine national. The Opinion states:

Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national because: (1) sixty
percent (60%) of its outstanding capital stock entitled to vote is owned by a Philippine national, the Trustee; and (2)
at least sixty percent (60%) of the ERF will accrue to the benefit of Philippine nationals. Still pursuant to the Control
Test, MLRC’s investment in 60% of BFDC’s outstanding capital stock entitled to vote shall be deemed as of
Philippine nationality, thereby qualifying BFDC to own private land.

Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals, considering that: (1)
sixty percent (60%) of their respective outstanding capital stock entitled to vote is owned by a Philippine national

26
(i.e., by the Trustee, in the case of MLRC; and by MLRC, in the case of BFDC); and (2) at least 60% of their
respective board of directors are Filipino citizens.

Clearly, these DOJ and SEC opinions are compatible with the Court’s interpretation of the 60-40 ownership
requirement in favor of Filipino citizens mandated by the Constitution for certain economic activities. At the same
time, these opinions highlight the conflicting, contradictory, and inconsistent positions taken by the DOJ and the
SEC on the definition of the term "capital" found in the economic provisions of the Constitution.

The opinions issued by SEC legal officers do not have the force and effect of SEC rules and regulations because
only the SEC en banc can adopt rules and regulations. As expressly provided in Section 4.6 of the Securities
Regulation Code, the SEC cannot delegate to any of its individual Commissioner or staff the power to adopt any rule
or regulation. Further, under Section 5.1 of the same Code, it is the SEC as a collegial body, and not any of its legal
officers, that is empowered to issue opinions and approve rules and regulations. Thus:

4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or office of the
Commission, an individual Commissioner or staff member of the Commission except its review or appellate authority
and its power to adopt, alter and supplement any rule or regulation.

The Commission may review upon its own initiative or upon the petition of any interested party any action of any
department or office, individual Commissioner, or staff member of the Commission.

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shall have
the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the
Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission
shall have, among others, the following powers and functions:

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on
and supervise compliance with such rules, regulations and orders

Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that have the effect of
SEC rules or regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the Code, only the SEC en banc can "issue
opinions" that have the force and effect of rules or regulations. Section 4.6 of the Code bars the SEC en banc from
delegating to any individual Commissioner or staff the power to adopt rules or regulations. In short, any opinion of
individual Commissioners or SEC legal officers does not constitute a rule or regulation of the SEC.

The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual commissioners
or legal staff, is empowered to issue opinions which have the same binding effect as SEC rules and regulations,
thus:

Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions on
behalf of the SEC, has adopted even the Grandfather Rule in determining compliance with the 60-40 ownership
requirement in favor of Filipino citizens mandated by the Constitution for certain economic activities. This prevailing
SEC ruling, which the SEC correctly adopted to thwart any circumvention of the required Filipino "ownership and
control," is laid down in the 25 March 2010 SEC en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur
Mining, Inc., et al., to wit:

The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our natural resources.
Necessarily, therefore, the Rule interpreting the constitutional provision should not diminish that right through the
legal fiction of corporate ownership and control. But the constitutional provision, as interpreted and practiced via the
1967 SEC Rules, has favored foreigners contrary to the command of the Constitution. Hence, the Grandfather Rule
must be applied to accurately determine the actual participation, both direct and indirect, of foreigners in a
corporation engaged in a nationalized activity or business.

Compliance with the constitutional limitation(s) on engaging in nationalized activities must be determined by
ascertaining if 60% of the investing corporation’s outstanding capital stock is owned by "Filipino citizens", or as
interpreted, by natural or individual Filipino citizens. If such investing corporation is in turn owned to some extent by
another investing corporation, the same process must be observed. One must not stop until the citizenships of the
individual or natural stockholders of layer after layer of investing corporations have been established, the very
essence of the Grandfather Rule.

Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule. In one of the
discussions on what is now Article XII of the present Constitution, the framers made the following exchange:

27
This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership requirement in favor of
Filipino citizens in the Constitution to engage in certain economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the corporation. Thus, in our 28 June 2011 Decision we stated:

Mere legal title is insufficient to meet the 60 percent Filipino owned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-
Philippine national[s].

Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation
is a "Philippine national."

The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions which respondents
relied upon, is merely preliminary and an opinion only of such officers. To repeat, any such opinion does not
constitute an SEC rule or regulation. In fact, many of these opinions contain a disclaimer which expressly states: the
foregoing opinion is based solely on facts disclosed in your query and relevant only to the particular issue raised
therein and shall not be used in the nature of a standing rule binding upon the Commission in other cases whether
of similar or dissimilar circumstances. Thus, the opinions clearly make a caveat that they do not constitute binding
precedents on any one, not even on the SEC itself.

Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither conclusive nor
controlling and thus, do not bind the Court. It is hornbook doctrine that any interpretation of the law that
administrative or quasi-judicial agencies make is only preliminary, never conclusive on the Court. The power to
make a final interpretation of the law, in this case the term "capital" in Section 11, Article XII of the 1987
Constitution, lies with this Court, not with any other government entity.

In his motion for reconsideration, the PSE President cites the cases of National Telecommunications Commission v.
Court of Appeals and Philippine Long Distance Telephone Company v. National Telecommunications Commission in
arguing that the Court has already defined the term "capital" in Section 11, Article XII of the 1987 Constitution.

The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of Appeals and
Philippine Long Distance Telephone Company v. National Telecommunications Commission, the Court did not
define the term "capital" as found in Section 11, Article XII of the 1987 Constitution. In fact, these two cases never
mentioned, discussed or cited Section 11, Article XII of the Constitution or any of its economic provisions, and thus
cannot serve as precedent in the interpretation of Section 11, Article XII of the Constitution. These two cases dealt
solely with the determination of the correct regulatory fees under Section 40(e) and (f) of the Public Service Act, to
wit:

(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of other public
services and/or in the regulation or fixing of their rates, twenty centavos for each one hundred pesos or fraction
thereof, of the capital stock subscribed or paid, or if no shares have been issued, of the capital invested, or of the
property and equipment whichever is higher.

(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or fraction thereof, of the
increased capital.

The Court’s interpretation in these two cases of the terms "capital stock subscribed or paid," "capital stock" and
"capital" does not pertain to, and cannot control, the definition of the term "capital" as used in Section 11, Article XII
of the Constitution, or any of the economic provisions of the Constitution where the term "capital" is found. The
definition of the term "capital" found in the Constitution must not be taken out of context. A careful reading of these
two cases reveals that the terms "capital stock subscribed or paid," "capital stock" and "capital" were defined solely
to determine the basis for computing the supervision and regulation fees under Section 40(e) and (f) of the Public
Service Act.
III.
Filipinization of Public Utilities

The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies the ideals that the
Constitution intends to achieve. The Preamble reads:

We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and humane society,
and establish a Government that shall embody our ideals and aspirations, promote the common good, conserve and
develop our patrimony, and secure to ourselves and our posterity, the blessings of independence and democracy
under the rule of law and a regime of truth, justice, freedom, love, equality, and peace, do ordain and promulgate
this Constitution. (Emphasis supplied)
28
Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy the development
of a national economy "effectively controlled" by Filipinos:

Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by
Filipinos.

Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:

Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national
interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of
whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of
investments. The Congress shall enact measures that will encourage the formation and operation of enterprises
whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give
preference to qualified Filipinos.

The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in
accordance with its national goals and priorities.

Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the "capital" of
which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)
Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or
R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521.

With respect to public utilities, the 1987 Constitution specifically ordains:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate,
or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall encourage equity participation in public utilities by
the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.

This provision, which mandates the Filipinization of public utilities, requires that any form of authorization for the
operation of public utilities shall be granted only to "citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens."
"The provision is [an express] recognition of the sensitive and vital position of public utilities both in the national
economy and for national security.

The 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1) Filipino citizens, or
(2) corporations or associations at least 60 percent of whose "capital" is owned by Filipino citizens. Hence, in the
case of individuals, only Filipino citizens can validly own and operate a public utility. In the case of corporations or
associations, at least 60 percent of their "capital" must be owned by Filipino citizens. In other words, under Section
11, Article XII of the 1987 Constitution, to own and operate a public utility a corporation’s capital must at least be 60
percent owned by Philippine nationals.

IV.
Definition of "Philippine National"

Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress enacted Republic Act
No. 7042 or the Foreign Investments Act of 1991 (FIA), as amended, which defined a "Philippine national" as
follows:

SEC. 3. Definitions. - As used in this Act:

29
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association
wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at
least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is
wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities
and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding
and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least
sixty percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a "Philippine national." (Boldfacing, italicization and
underscoring supplied)

Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a domestic
corporation at least "60% of the capital stock outstanding and entitled to vote" is owned by Philippine citizens.

The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in its predecessor
statute, Executive Order No. 226 or the Omnibus Investments Code of 1987, which was issued by then President
Corazon C. Aquino. Article 15 of this Code states:

Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership or association
wholly-owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at
least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee
is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals:
Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least
sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and
held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of
both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine
national.

Under Article 48(3) of the Omnibus Investments Code of 1987, "no corporation which is not a ‘Philippine national’
shall do business in the Philippines without first securing from the Board of Investments a written certificate to the
effect that such business or economic activity would not conflict with the Constitution or laws of the Philippines.
Thus, a "non-Philippine national" cannot own and operate a reserved economic activity like a public utility. This
means, of course, that only a "Philippine national" can own and operate a public utility.

In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code of 1987 was a
reiteration of the meaning of such term as provided in Article 14 of the Omnibus Investments Code of 1981, to wit:

Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association
wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at
least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee
is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals:
Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least
sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and
held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of
both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine
national.

Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation which is not a ‘Philippine national’
shall do business in the Philippines without first securing a written certificate from the Board of Investments to the
effect that such business or economic activity would not conflict with the Constitution or laws of the Philippines.
Thus, a "non-Philippine national" cannot own and operate a reserved economic activity like a public utility. Again,
this means that only a "Philippine national" can own and operate a public utility.

Prior to the Omnibus Investments Code of 1981, Republic Act No. 5186 or the Investment Incentives Act, which took
effect on 16 September 1967, contained a similar definition of a "Philippine national," to wit:

(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or association wholly owned by
citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per
cent of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a
trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine
30
National and at least sixty per cent of the fund will accrue to the benefit of Philippine Nationals: Provided, That
where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent of
the capital stock outstanding and entitled to vote of both corporations must be owned and held by the citizens of the
Philippines and at least sixty per cent of the members of the Board of Directors of both corporations must be citizens
of the Philippines in order that the corporation shall be considered a Philippine National. (Boldfacing, italicization
and underscoring supplied)

Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took effect on 30
September 1968, if the investment in a domestic enterprise by non-Philippine nationals exceeds 30% of its
outstanding capital stock, such enterprise must obtain prior approval from the Board of Investments before
accepting such investment. Such approval shall not be granted if the investment "would conflict with existing
constitutional provisions and laws regulating the degree of required ownership by Philippine nationals in the
enterprise." A "non-Philippine national" cannot own and operate a reserved economic activity like a public utility.
31

Again, this means that only a "Philippine national" can own and operate a public utility.

The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino citizen, or a domestic
corporation "at least sixty percent (60%) of the capital stock outstanding and entitled to vote" is owned by Filipino
citizens. A domestic corporation is a "Philippine national" only if at least 60% of its voting stock is owned by Filipino
citizens. This definition of a "Philippine national" is crucial in the present case because the FIA reiterates and
clarifies Section 11, Article XII of the 1987 Constitution, which limits the ownership and operation of public utilities to
Filipino citizens or to corporations or associations at least 60% Filipino-owned.

The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature of business and
area of investment. The FIA spells out the procedures by which non-Philippine nationals can invest in the
Philippines. Among the key features of this law is the concept of a negative list or the Foreign Investments Negative
List. Section 8 of the law states:

SEC. 8. List of Investment Areas Reserved to Philippine Nationals. - The Foreign Investment Negative List shall
have two component lists: A and B:
2

a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the Constitution and
specific laws.

b. List B shall contain the areas of activities and enterprises regulated pursuant to law:

1. which are defense-related activities, requiring prior clearance and authorization from the Department of National
Defense [DND] to engage in such activity, such as the manufacture, repair, storage and/or distribution of firearms,
ammunition, lethal weapons, military ordinance, explosives, pyrotechnics and similar materials; unless such
manufacturing or repair activity is specifically authorized, with a substantial export component, to a non-Philippine
national by the Secretary of National Defense; or

2. which have implications on public health and morals, such as the manufacture and distribution of dangerous
drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and
massage clinics. (Boldfacing, underscoring and italicization supplied)

Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign Investment
Negative List A consists of "areas of activities reserved to Philippine nationals by mandate of the Constitution and
specific laws," where foreign equity participation in any enterprise shall be limited to the maximum percentage
expressly prescribed by the Constitution and other specific laws. In short, to own and operate a public utility in the
Philippines one must be a "Philippine national" as defined in the FIA. The FIA is abundant notice to foreign investors
to what extent they can invest in public utilities in the Philippines.

To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the ownership and
operation of public utilities, which the Constitution expressly reserves to Filipino citizens and to corporations at least
60% owned by Filipino citizens. In other words, Negative List A of the FIA reserves the ownership and operation of
public utilities only to "Philippine nationals," defined in Section 3(a) of the FIA as "(1) a citizen of the Philippines; or
(3) a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or (4) a corporation
organized abroad and registered as doing business in the Philippines under the Corporation Code of which one
hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals."

Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus Investments
Code of 1981, to the enactment of the Omnibus Investments Code of 1987, and to the passage of the present
31
Foreign Investments Act of 1991, or for more than four decades, the statutory definition of the term "Philippine
national" has been uniform and consistent: it means a Filipino citizen, or a domestic corporation at least 60% of the
voting stock is owned by Filipinos. Likewise, these same statutes have uniformly and consistently required that only
"Philippine nationals" could own and operate public utilities in the Philippines. The following exchange during the
Oral Arguments is revealing:

Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which categorically
prescribe that certain economic activities, like the ownership and operation of public utilities, are reserved to
corporations "at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines." Foreign Investment Negative List A refers to "activities reserved to Philippine nationals
by mandate of the Constitution and specific laws." The FIA is the basic statute regulating foreign investments in
the Philippines. Government agencies tasked with regulating or monitoring foreign investments, as well as
counsels of foreign investors, should start with the FIA in determining to what extent a particular foreign investment
is allowed in the Philippines. Foreign investors and their counsels who ignore the FIA do so at their own peril.
Foreign investors and their counsels who rely on opinions of SEC legal officers that obviously contradict the FIA do
so also at their own peril.

Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise a red flag.
There are already numerous opinions of SEC legal officers that cite the definition of a "Philippine national" in Section
3(a) of the FIA in determining whether a particular corporation is qualified to own and operate a nationalized or
partially nationalized business in the Philippines. This shows that SEC legal officers are not only aware of, but also
rely on and invoke, the provisions of the FIA in ascertaining the eligibility of a corporation to engage in partially
nationalized industries.

The SEC legal officers’ occasional but blatant disregard of the definition of the term "Philippine national" in the FIA
signifies their lack of integrity and competence in resolving issues on the 60-40 ownership requirement in favor of
Filipino citizens in Section 11, Article XII of the Constitution.

The PSE President argues that the term "Philippine national" defined in the FIA should be limited and interpreted to
refer to corporations seeking to avail of tax and fiscal incentives under investment incentives laws and cannot be
equated with the term "capital" in Section 11, Article XII of the 1987 Constitution. Pangilinan similarly contends that
the FIA and its predecessor statutes do not apply to "companies which have not registered and obtained special
incentives under the schemes established by those laws."

Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any enterprise. Tax and
fiscal incentives to investments are granted separately under the Omnibus Investments Code of 1987, not under the
FIA. In fact, the FIA expressly repealed Articles 44 to 56 of Book II of the Omnibus Investments Code of 1987, which
articles previously regulated foreign investments in nationalized or partially nationalized industries.

The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized industries. There
is nothing in the FIA, or even in the Omnibus Investments Code of 1987 or its predecessor statutes, that states,
expressly or impliedly, that the FIA or its predecessor statutes do not apply to enterprises not availing of tax and
fiscal incentives under the Code. The FIA and its predecessor statutes apply to investments in all domestic
enterprises, whether or not such enterprises enjoy tax and fiscal incentives under the Omnibus Investments Code of
1987 or its predecessor statutes. The reason is quite obvious – mere non-availment of tax and fiscal
incentives by a non-Philippine national cannot exempt it from Section 11, Article XII of the Constitution
regulating foreign investments in public utilities. In fact, the Board of Investments’ Primer on Investment
Policies in the Philippines, which is given out to foreign investors, provides:
34

PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES

Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives, (i.e., the activity is
not listed in the IPP, and they are not exporting at least 70% of their production) may go ahead and make the
investments without seeking incentives. They only have to be guided by the Foreign Investments Negative List
(FINL).

The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas outside of this
list are fully open to foreign investors. (Emphasis supplied)

V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.

32
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the Constitution to engage
in certain economic activities applies not only to voting control of the corporation, but also to the beneficial
ownership of the corporation. To repeat, we held:

Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting
rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in
the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is
"considered as non-Philippine national[s]." (Emphasis supplied)

This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is held by "a trustee
of funds for pension or other employee retirement or separation benefits," the trustee is a Philippine national if "at
least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals." Likewise, Section 1(b) of the
Implementing Rules of the FIA provides that "for stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of
the stocks, coupled with appropriate voting rights, is essential."

Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to voting control of the
corporation but also to the beneficial ownership of the corporation, it is therefore imperative that such requirement
apply uniformly and across the board to all classes of shares, regardless of nomenclature and category, comprising
the capital of a corporation. Under the Corporation Code, capital stock consists of all classes of shares issued to
stockholders, that is, common shares as well as preferred shares, which may have different rights, privileges or
restrictions as stated in the articles of incorporation.

The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but disallows denial of
the right to vote in specific corporate matters. Thus, common shares have the right to vote in the election of
directors, while preferred shares may be denied such right. Nonetheless, preferred shares, even if denied the right
to vote in the election of directors, are entitled to vote on the following corporate matters: (1) amendment of articles
of incorporation; (2) increase and decrease of capital stock; (3) incurring, creating or increasing bonded
indebtedness; (4) sale, lease, mortgage or other disposition of substantially all corporate assets; (5) investment of
funds in another business or corporation or for a purpose other than the primary purpose for which the corporation
was organized; (6) adoption, amendment and repeal of by-laws; (7) merger and consolidation; and (8) dissolution of
corporation.

Since a specific class of shares may have rights and privileges or restrictions different from the rest of the shares in
a corporation, the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the
Constitution must apply not only to shares with voting rights but also to shares without voting rights. Preferred
shares, denied the right to vote in the election of directors, are anyway still entitled to vote on the eight specific
corporate matters mentioned above. Thus, if a corporation, engaged in a partially nationalized industry, issues
a mixture of common and preferred non-voting shares, at least 60 percent of the common shares and at
least 60 percent of the preferred non-voting shares must be owned by Filipinos. Of course, if a corporation
issues only a single class of shares, at least 60 percent of such shares must necessarily be owned by Filipinos. In
short, the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each class of
shares, whether common, preferred non-voting, preferred voting or any other class of shares. This uniform
application of the 60-40 ownership requirement in favor of Filipino citizens clearly breathes life to the constitutional
command that the ownership and operation of public utilities shall be reserved exclusively to corporations at least 60
percent of whose capital is Filipino-owned. Applying uniformly the 60-40 ownership requirement in favor of Filipino
citizens to each class of shares, regardless of differences in voting rights, privileges and restrictions, guarantees
effective Filipino control of public utilities, as mandated by the Constitution.

Moreover, such uniform application to each class of shares insures that the "controlling interest" in public utilities
always lies in the hands of Filipino citizens. This addresses and extinguishes Pangilinan’s worry that foreigners,
owning most of the non-voting shares, will exercise greater control over fundamental corporate matters requiring
two-thirds or majority vote of all shareholders.
VI.
Intent of the framers of the Constitution

While Justice Velasco quoted in his Dissenting Opinion a portion of the deliberations of the Constitutional
Commission to support his claim that the term "capital" refers to the total outstanding shares of stock, whether
voting or non-voting, the following excerpts of the deliberations reveal otherwise. It is clear from the following
exchange that the term "capital" refers to controlling interest of a corporation, thus:

Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the corporation.

33
The use of the term "capital" was intended to replace the word "stock" because associations without stocks can
operate public utilities as long as they meet the 60-40 ownership requirement in favor of Filipino citizens prescribed
in Section 11, Article XII of the Constitution. However, this did not change the intent of the framers of the
Constitution to reserve exclusively to Philippine nationals the "controlling interest" in public utilities.

During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the nationalists in the
Convention. The same battle-cry resulted in the nationalization of the public utilities. This is also the same intent of
the framers of the 1987 Constitution who adopted the exact formulation embodied in the 1935 and 1973
Constitutions on foreign equity limitations in partially nationalized industries.

The OSG, in its own behalf and as counsel for the State, agrees fully with the Court’s interpretation of the term
"capital." In its Consolidated Comment, the OSG explains that the deletion of the phrase "controlling interest" and
replacement of the word "stock" with the term "capital" were intended specifically to extend the scope of the entities
qualified to operate public utilities to include associations without stocks. The framers’ omission of the phrase
"controlling interest" did not mean the inclusion of all shares of stock, whether voting or non-voting. The OSG
reiterated essentially the Court’s declaration that the Constitution reserved exclusively to Philippine nationals the
ownership and operation of public utilities consistent with the State’s policy to "develop a self-reliant and
independent national economy effectively controlled by Filipinos."

As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total outstanding capital
stock, treated as a single class regardless of the actual classification of shares, grossly contravenes the intent and
letter of the Constitution that the "State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos." We illustrated the glaring anomaly which would result in defining the term "capital" as the
total outstanding capital stock of a corporation, treated as a single class of shares regardless of the actual
classification of shares, to wit:

Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred
shares owned by Filipinos, with both classes of share having a par value of one peso (₱ 1.00) per share. Under the
broad definition of the term "capital," such corporation would be considered compliant with the 40 percent
constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent,
of the total outstanding capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors,
even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise
control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity,
cannot vote in the election of directors and hence, have no control over the public utility. This starkly circumvents the
intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of
public utilities in the hands of Filipinos.

Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino board of
directors, this situation does not guarantee Filipino control and does not in any way cure the violation of the
Constitution. The independence of the Filipino board members so elected by such foreign shareholders is highly
doubtful. As the OSG pointed out, quoting Justice George Sutherland’s words in Humphrey’s Executor v. US, it is
quite evident that one who holds his office only during the pleasure of another cannot be depended upon to maintain
an attitude of independence against the latter’s will." Allowing foreign shareholders to elect a controlling majority of
the board, even if all the directors are Filipinos, grossly circumvents the letter and intent of the Constitution and
defeats the very purpose of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the Constitution

The last sentence of Section 11, Article XII of the 1987 Constitution reads:

The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or association
must be citizens of the Philippines.

During the Oral Arguments, the OSG emphasized that there was never a question on the intent of the framers of the
Constitution to limit foreign ownership, and assure majority Filipino ownership and control of public utilities. The
OSG argued, "while the delegates disagreed as to the percentage threshold to adopt the records show they clearly
understood that Filipino control of the public utility corporation can only be and is obtained only through the election
of a majority of the members of the board."

Indeed, the only point of contention during the deliberations of the Constitutional Commission on 23 August 1986
was the extent of majority Filipino control of public utilities.

34
Their second point is that under the Corporation Code, the management and control of a corporation is vested in the
board of directors, not in the officers but in the board of directors. The officers are only agents of the board. And
they believe that with 60 percent of the equity, the Filipino majority stockholders undeniably control the board. Only
on important corporate acts can the 40-percent foreign equity exercise a veto,.

While they had differing views on the percentage of Filipino ownership of capital, it is clear that the framers of the
Constitution intended public utilities to be majority Filipino-owned and controlled. To ensure that Filipinos control
public utilities, the framers of the Constitution approved, as additional safeguard, the inclusion of the last sentence
of Section 11, Article XII of the Constitution commanding that "[t]he participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive
and managing officers of such corporation or association must be citizens of the Philippines." In other words, the
last sentence of Section 11, Article XII of the Constitution mandates that (1) the participation of foreign investors in
the governing body of the corporation or association shall be limited to their proportionate share in the capital of
such entity; and (2) all officers of the corporation or association must be Filipino citizens.

The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on the limited
participation of foreign investors in the governing body of public utilities, is a reiteration of the last sentence of
Section 5, Article XIV of the 1973 Constitution, signifying its importance in reserving ownership and control of public
49

utilities to Filipino citizens.

VIII.
The undisputed facts

There is no dispute, and respondents do not claim the contrary, that (1) foreigners own 64.27% of the common
shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus
foreigners control PLDT; (2) Filipinos own only 35.73% of PLDT’s common shares, constituting a minority of the
voting stock, and thus Filipinos do not control PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no
voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; (5) preferred shares
50

have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital
stock of PLDT and common shares only 22.15%.

Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the question of whether
PLDT violated the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the 1987
Constitution. Such question indisputably calls for a presentation and determination of evidence through a hearing,
which is generally outside the province of the Court’s jurisdiction, but well within the SEC’s statutory powers. Thus,
for obvious reasons, the Court limited its decision on the purely legal and threshold issue on the definition of the
term "capital" in Section 11, Article XII of the Constitution and directed the SEC to apply such definition in
determining the exact percentage of foreign ownership in PLDT.

IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.

In his petition, Gamboa prays, among others:

5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is the sole basis
in determining foreign equity in a public utility and that any other government rulings, opinions, and regulations
inconsistent with this declaratory relief be declared unconstitutional and a violation of the intent and spirit of the
1987 Constitution;

6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess of 40 percent
of the total subscribed common shareholdings; and

7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine Stock Exchange
to require PLDT to make a public disclosure of all of its foreign shareholdings and their actual and real
beneficial owners.

Other relief(s) just and equitable are likewise prayed for.

As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its statutory duty
to investigate whether "the required percentage of ownership of the capital stock to be owned by citizens of the
Philippines has been complied with [by PLDT] as required by the Constitution. Such plea clearly negates SEC’s
argument that it was not impleaded.

Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to order the SEC’s
compliance with its directive contained in the 28 June 2011 Decision in view of the far-reaching implications of this
35
case. In Domingo v. Scheer, the Court dispensed with the amendment of the pleadings to implead the Bureau of
52

Customs considering (1) the unique backdrop of the case; (2) the utmost need to avoid further delays; and (3) the
issue of public interest involved. The Court held:

The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition should not be
dismissed because the second action would only be a repetition of the first. In Salvador, et al., v. Court of Appeals,
et al., we held that this Court has full powers, apart from that power and authority which is inherent, to amend the
processes, pleadings, proceedings and decisions by substituting as party-plaintiff the real party-in-interest. The
Court has the power to avoid delay in the disposition of this case, to order its amendment as to implead the
BOC as party-respondent. Indeed, it may no longer be necessary to do so taking into account the unique
backdrop in this case, involving as it does an issue of public interest. After all, the Office of the Solicitor
General has represented the petitioner in the instant proceedings, as well as in the appellate court, and maintained
the validity of the deportation order and of the BOC’s Omnibus Resolution. It cannot, thus, be claimed by the State
that the BOC was not afforded its day in court, simply because only the petitioner, the Chairperson of the BOC, was
the respondent in the CA, and the petitioner in the instant recourse. In Alonso v. Villamor, we had the occasion to
state:

There is nothing sacred about processes or pleadings, their forms or contents. Their sole purpose is to
facilitate the application of justice to the rival claims of contending parties. They were created, not to hinder
and delay, but to facilitate and promote, the administration of justice. They do not constitute the thing itself, which
courts are always striving to secure to litigants. They are designed as the means best adapted to obtain that thing.
In other words, they are a means to an end. When they lose the character of the one and become the other, the
administration of justice is at fault and courts are correspondingly remiss in the performance of their obvious duty.

In any event, the SEC has expressly manifested that it will abide by the Court’s decision and defer to the
54

Court’s definition of the term "capital" in Section 11, Article XII of the Constitution. Further, the SEC entered
its special appearance in this case and argued during the Oral Arguments, indicating its submission to the
Court’s jurisdiction. It is clear, therefore, that there exists no legal impediment against the proper and
immediate implementation of the Court’s directive to the SEC.

PLDT is an indispensable party only insofar as the other issues, particularly the factual questions, are concerned. In
other words, PLDT must be impleaded in order to fully resolve the issues on (1) whether the sale of 111,415 PTIC
shares to First Pacific violates the constitutional limit on foreign ownership of PLDT; (2) whether the sale of common
shares to foreigners exceeded the 40 percent limit on foreign equity in PLDT; and (3) whether the total percentage
of the PLDT common shares with voting rights complies with the 60-40 ownership requirement in favor of Filipino
citizens under the Constitution for the ownership and operation of PLDT. These issues indisputably call for an
examination of the parties’ respective evidence, and thus are clearly within the jurisdiction of the SEC. In short,
PLDT must be impleaded, and must necessarily be heard, in the proceedings before the SEC where the factual
issues will be thoroughly threshed out and resolved.

Notably, the foregoing issues were left untouched by the Court. The Court did not rule on the factual issues
raised by Gamboa, except the single and purely legal issue on the definition of the term "capital" in Section 11,
Article XII of the Constitution. The Court confined the resolution of the instant case to this threshold legal issue in
deference to the fact-finding power of the SEC.

Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in this case even
without the participation of PLDT since defining the term "capital" in Section 11, Article XII of the Constitution does
not, in any way, depend on whether PLDT was impleaded. Simply put, PLDT is not indispensable for a complete
resolution of the purely legal question in this case. In fact, the Court, by treating the petition as one for mandamus,
55 56

merely directed the SEC to apply the Court’s definition of the term "capital" in Section 11, Article XII of the
Constitution in determining whether PLDT committed any violation of the said constitutional provision. The
dispositive portion of the Court’s ruling is addressed not to PLDT but solely to the SEC, which is the
administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution.

Since the Court limited its resolution on the purely legal issue on the definition of the term "capital" in Section 11,
Article XII of the 1987 Constitution, and directed the SEC to investigate any violation by PLDT of the 60-40
ownership requirement in favor of Filipino citizens under the Constitution, there is no deprivation of PLDT’s property
57

or denial of PLDT’s right to due process, contrary to Pangilinan and Nazareno’s misimpression. Due process will be
afforded to PLDT when it presents proof to the SEC that it complies, as it claims here, with Section 11, Article XII of
the Constitution.
X.
Foreign Investments in the Philippines

36
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in a sudden flight
of existing foreign investors to "friendlier" countries and simultaneously deterring new foreign investors to our
country. In particular, the PSE claims that the 28 June 2011 Decision may result in the following: (1) loss of more
than ₱ 630 billion in foreign investments in PSE-listed shares; (2) massive decrease in foreign trading transactions;
(3) lower PSE Composite Index; and (4) local investors not investing in PSE-listed shares

Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants’ apprehension. Without
providing specific details, he pointed out the depressing state of the Philippine economy compared to our
neighboring countries which boast of growing economies. Further, Dr. Villegas explained that the solution to our
economic woes is for the government to "take-over" strategic industries, such as the public utilities sector.

If government ownership of public utilities is the solution, then foreign investments in our public utilities serve no
purpose. Obviously, there can never be foreign investments in public utilities if, as Dr. Villegas claims, the "solution
is to make sure that those industries are in the hands of state enterprises." Dr. Villegas’s argument that foreign
investments in telecommunication companies like PLDT are badly needed to save our ailing economy contradicts
his own theory that the solution is for government to take over these companies. Dr. Villegas is barking up the wrong
tree since State ownership of public utilities and foreign investments in such industries are diametrically opposed
concepts, which cannot possibly be reconciled.

In any event, the experience of our neighboring countries cannot be used as argument to decide the present case
differently for two reasons. First, the governments of our neighboring countries have, as claimed by Dr. Villegas,
taken over ownership and control of their strategic public utilities like the telecommunications industry. Second, our
Constitution has specific provisions limiting foreign ownership in public utilities which the Court is sworn to uphold
regardless of the experience of our neighboring countries.

In our jurisdiction, the Constitution expressly reserves the ownership and operation of public utilities to Filipino
citizens, or corporations or associations at least 60 percent of whose capital belongs to Filipinos. Following Dr.
Villegas’s claim, the Philippines appears to be more liberal in allowing foreign investors to own 40 percent of public
utilities, unlike in other Asian countries whose governments own and operate such industries.

XI.
Prospective Application of Sanctions

In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the application and
imposition of appropriate sanctions against PLDT if found violating Section 11, Article XII of the Constitution. 1avvphi1

As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated Section 11,
Article XII of the Constitution. Thus, there is no dispute that it is only after the SEC has determined PLDT’s violation,
if any exists at the time of the commencement of the administrative case or investigation, that the SEC may impose
the statutory sanctions against PLDT. In other words, once the 28 June 2011 Decision becomes final, the SEC shall
impose the appropriate sanctions only if it finds after due hearing that, at the start of the administrative case or
investigation, there is an existing violation of Section 11, Article XII of the Constitution. Under prevailing
jurisprudence, public utilities that fail to comply with the nationality requirement under Section 11, Article XII and the
FIA can cure their deficiencies prior to the start of the administrative case or investigation.

XII.
Final Word

The Constitution expressly declares as State policy the development of an economy "effectively controlled" by
Filipinos. Consistent with such State policy, the Constitution explicitly reserves the ownership and operation of public
utilities to Philippine nationals, who are defined in the Foreign Investments Act of 1991 as Filipino citizens, or
corporations or associations at least 60 percent of whose capital with voting rights belongs to Filipinos. The FIA’s
implementing rules explain that "[f]or stocks to be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the
stocks, coupled with appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and confirms
the interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares with
voting rights, as well as with full beneficial ownership. This is precisely because the right to vote in the election
of directors, coupled with full beneficial ownership of stocks, translates to effective control of a corporation.

Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes the letter and
intent of the Constitution. Any other meaning of the term "capital" openly invites alien domination of economic
activities reserved exclusively to Philippine nationals. Therefore, respondents’ interpretation will ultimately result in
handing over effective control of our national economy to foreigners in patent violation of the Constitution, making
Filipinos second-class citizens in their own country.

37
Filipinos have only to remind themselves of how this country was exploited under the Parity Amendment, which
gave Americans the same rights as Filipinos in the exploitation of natural resources, and in the ownership and
control of public utilities, in the Philippines. To do this the 1935 Constitution, which contained the same 60 percent
Filipino ownership and control requirement as the present 1987 Constitution, had to be amended to give Americans
parity rights with Filipinos. There was bitter opposition to the Parity Amendment and many Filipinos eagerly awaited
62

its expiration. In late 1968, PLDT was one of the American-controlled public utilities that became Filipino-controlled
when the controlling American stockholders divested in anticipation of the expiration of the Parity Amendment on 3
July 1974. No economic suicide happened when control of public utilities and mining corporations passed to
63

Filipinos’ hands upon expiration of the Parity Amendment.

Movants’ interpretation of the term "capital" would bring us back to the same evils spawned by the Parity
Amendment, effectively giving foreigners parity rights with Filipinos, but this time even without any
amendment to the present Constitution. Worse, movants’ interpretation opens up our national economy to
effective control not only by Americans but also by all foreigners, be they Indonesians, Malaysians or Chinese,
even in the absence of reciprocal treaty arrangements. At least the Parity Amendment, as implemented by the
Laurel-Langley Agreement, gave the capital-starved Filipinos theoretical parity – the same rights as Americans to
exploit natural resources, and to own and control public utilities, in the United States of America. Here, movants’
interpretation would effectively mean a unilateral opening up of our national economy to all foreigners, without any
reciprocal arrangements. That would mean that Indonesians, Malaysians and Chinese nationals could effectively
control our mining companies and public utilities while Filipinos, even if they have the capital, could not control
similar corporations in these countries.

The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control requirement for
public utilities like PLOT. Any deviation from this requirement necessitates an amendment to the Constitution as
exemplified by the Parity Amendment. This Court has no power to amend the Constitution for its power and duty is
only to faithfully apply and interpret the Constitution.

WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be
entertained. SO ORDERED.

9. G.R. No. 195580 April 21, 2014.. NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
DEVELOPMENT, INC., and MCARTHUR MINING, INC., Petitioners, vs. REDMONT CONSOLIDATED MINES CORP.,
Respondent.

Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining Development
Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which seeks to
reverse the October 1, 2010 Decision1 and the February 15, 2011 Resolution of the Court of Appeals (CA).

The Facts: Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic
corporation organized and existing under Philippine laws, took interest in mining and exploring certain areas of the
province of Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it learned that
the areas where it wanted to undertake exploration and mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.

Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an
MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the
Department of Environment and Natural Resources (DENR).

Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay Sumbiling,
Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in Barangay
Malatagao, Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and,
on November 6, 2006, assigned to petitioner McArthur.

Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining &
Development Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, DENR
on January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in
barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or
assigned its rights and interests over the MPSA application in favor of Narra.

Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-
IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan.
SMMI subsequently conveyed, transferred and assigned its rights and interest over the said MPSA application to Tesoro.

38
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the
denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.

In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas
covered by applications since it knows that it can only participate in mining activities through corporations which are
deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino
citizens.

In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No. (RA) 7942
or the Philippine Mining Act of 1995 which provided:

Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in singular or plural,
shall mean:

Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation, partnership,
association, or cooperative organized or authorized for the purpose of engaging in mining, with technical and financial
capability to undertake mineral resources development and duly registered in accordance with law at least sixty per cent
(60%) of the capital of which is owned by citizens of the Philippines: Provided, That a legally organized foreign-owned
corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or technical
assistance agreement or mineral processing permit.

Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial or
Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-
IVB-07 for Narra, which are granted to foreign-owned corporations. Nevertheless, they claimed that the issue on
nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital
is owned by citizens of the Philippines. They asserted that though MBMI owns 40% of the shares of PLMC (which owns
5,997 shares of Narra),3 40% of the shares of MMC (which owns 5,997 shares of McArthur) and 40% of the shares of
SLMC (which, in turn, owns 5,997 shares of Tesoro), the shares of MBMI will not make it the owner of at least 60% of the
capital stock of each of petitioners. They added that the best tool used in determining the nationality of a corporation is
the "control test," embodied in Sec. of RA 7042 or the Foreign Investments Act of 1991. They also claimed that the POA
of DENR did not have jurisdiction over the issues in Redmont’s petition since they are not enumerated in Sec. 77 of RA
7942. Finally, they stressed that Redmont has no personality to sue them because it has no pending claim or application
over the areas applied for by petitioners.

On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held:

It is clearly established that respondents are not qualified applicants to engage in mining activities. On the other hand,
[Redmont] having filed its own applications for an EPA over the areas earlier covered by the MPSA application of
respondents may be considered if and when they are qualified under the law. The violation of the requirements for the
issuance and/or grant of permits over mining areas is clearly established thus, there is reason to believe that the
cancellation and/or revocation of permits already issued under the premises is in order and open the areas covered to
other qualified applicants.

WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and Development,
Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being considered as Foreign Corporations.
Their Mineral Production Sharing Agreement (MPSA) are hereby DECLARED NULL AND VOID.

The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian
company and declared their MPSAs null and void. In the same Resolution, it gave due course to Redmont’s EPAs.
Thereafter, on February 7, 2008, the POA issued an Order denying the Motion for Reconsideration filed by petitioners.

Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Appeal8 and
Memorandum of Appeal9 with the Mines Adjudication Board (MAB) while Narra separately filed its Notice of Appeal and
Memorandum of Appeal.

In their respective memorandum, petitioners emphasized that they are qualified persons under the law. Also, through a
letter, they informed the MAB that they had their individual MPSA applications converted to FTAAs. McArthur’s FTAA
was denominated as AFTA-IVB-0912 on May 2007, while Tesoro’s MPSA application was converted to AFTA-IVB-0813 on
May 28, 2007, and Narra’s FTAA was converted to AFTA-IVB-0714 on March 30, 2006.
39
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint15 with the Securities
and Exchange Commission (SEC), seeking the revocation of the certificates for registration of petitioners on the ground
that they are foreign-owned or controlled corporations engaged in mining in violation of Philippine laws. Thereafter,
Redmont filed on September 1, 2008 a Manifestation and Motion to Suspend Proceeding before the MAB praying for
the suspension of the proceedings on the appeals filed by McArthur, Tesoro and Narra.

Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City, Branch 92 (RTC) a
Complaint for injunction with application for issuance of a temporary restraining order (TRO) and/or writ of preliminary
injunction, docketed as Civil Case No. 08-63379. Redmont prayed for the deferral of the MAB proceedings pending the
resolution of the Complaint before the SEC.

But before the RTC can resolve Redmont’s Complaint and applications for injunctive reliefs, the MAB issued an Order on
September 10, 2008, finding the appeal meritorious. It held:

WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS ASIDE the Resolution
dated 14 December 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-
02 and 2007-03, and its Order dated 07 February 2008 denying the Motions for Reconsideration of the Appellants. The
Petition filed by Redmont Consolidated Mines Corporation on 02 January 2007 is hereby ordered DISMISSED.

Belatedly, on September 16, 2008, the RTC issued an Order granting Redmont’s application for a TRO and setting the
case for hearing the prayer for the issuance of a writ of preliminary injunction on September 19, 2008.

Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration of the September 10, 2008 Order of
the MAB. Subsequently, it filed a Supplemental Motion for Reconsideration on September 29, 2008.

Before the MAB could resolve Redmont’s Motion for Reconsideration and Supplemental Motion for Reconsideration,
Redmont filed before the RTC a Supplemental Complaint in Civil Case No. 08-63379.

On October 6, 2008, the RTC issued an Order granting the issuance of a writ of preliminary injunction enjoining the MAB
from finally disposing of the appeals of petitioners and from resolving Redmont’s Motion for Reconsideration and
Supplement Motion for Reconsideration of the MAB’s September 10, 2008 Resolution.

On July 1, 2009, however, the MAB issued a second Order denying Redmont’s Motion for Reconsideration and
Supplemental Motion for Reconsideration and resolving the appeals filed by petitioners.

Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB. On October 1,
2010, the CA rendered a Decision, the dispositive of which reads:

WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10, 2008 and July 1, 2009 of
the Mining Adjudication Board are reversed and set aside. The findings of the Panel of Arbitrators of the Department of
Environment and Natural Resources that respondents McArthur, Tesoro and Narra are foreign corporations is upheld
and, therefore, the rejection of their applications for Mineral Product Sharing Agreement should be recommended to
the Secretary of the DENR.

With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical Assistance
Agreement (FTAA) or conversion of their MPSA applications to FTAA, the matter for its rejection or approval is left for
determination by the Secretary of the DENR and the President of the Republic of the Philippines. SO ORDERED

40
310. G.R. No. L-8527             March 30, 1914 WEST COAST LIFE INSURANCE CO., plaintiff, vs. GEO
N. HURD, Judge of Court of First Instance, defendant.

This is an action for the issuance of a writ of prohibition against the defendant "commanding the defendant
to desist or refrain from further proceedings in a criminal action pending in that court."

The petitioner is a foreign life-insurance corporation, duly organized under and by virtue of the laws of the
State of California, doing business regularly and legally in the Philippine Islands pursuant to its laws.

On the 16th of December, 1912, the assistant prosecuting attorney of the city of Manila filed an information
in a criminal action in the Court of First Instance of that city against the plaintiff, said corporation, and also
against John Northcott and Manuel C. Grey, charging said corporation and said individuals with the crime
of libel. On the 17th day of December the defendant in his official capacity as judge of the court of First
Instance signed and issued a process directed to the plaintiff and the other accused in said criminal action,
which said process reads as follows:

UNITED STATES OF AMERICA,

PHILIPPINE ISLANDS.
In the Court of First Instance of the Judicial District of Manila.
THE UNITED STATES No. 9661
versus Libel.
WEST COAST LIFE INSURANCE CO., JOHN NORTHCOTT, AND MANUEL C. GREY.
To West Coast Life Insurance Co., John Northcott, and Manuel C. Grey, Manila.
SUMMONS.
You are hereby summoned to appear before the Court of First Instance of the city of Manila
P.I., on the 18th day of December, 1912, at the hour of 8 a.m., to answer the charge made
against you upon the information of F. H. Nesmith, assistant prosecuting attorney of the city
of Manila, for libel, as set forth in the said information filed in this copurt on December 16,
1912, a copy of which is hereto attached and herewith served upon you.
Dated at the city of Manila, P. I., this 17th day of December, 1912.
(Sgd.) GEO N. HURD,
Judge, Court of First Instance.

The information upon which said process was issued is as follows:

The undersigned accuses the West Coast Life Insurance Company, John Northcott, and
Manuel C. Grey of the crime of libel, committed as follows:

That on or about the 14th day of September, 1912, and continuously thereafter up to and
including the date of this complaint, in the city of Manila, P. I., the said defendant West
Coast Life Insurance Company was and has been a foreign corporation duly organized in
the State of California, United States of America, and registered and doing business in the
Philippine Islands; that the said defendant John Nortcott then and there was and has been
the general agent and manager for the Philippine Islands of the said defendant corporation
West Coast Life Insurance Company, and the said defendant Manuel C. Grey was and has
been an agent and employee of the said defendant corporation West Coast Life Insurance
Company, acting in the capacity of treasurer of the branch of the said defendant corporation
in the Philippine Islands; that on or about the said 14th day of September, 1912, and for
some time thereafter, to wit, during the months of September and October, 1912, in the city
of Manila, P.I., the said defendants West Coast Life Insurance Company, John Northcott,
and Manuel C. Grey, conspiring and confederating together, did then and there willfully,
unlawfully, and maliciously, and to the damage of the Insular Life Insurance Company, a
domestic corporation duly organized, registered, and doing business in the Philippine
Islands, and with intent o cause such damage and to expose the said Insular Life Insurance
Company to public hatred, contempt, and ridicule, compose and print, and cause to be
printed a large number of circulars, and, in numerous printings in the form of said circulars,
did publish and distribute, and cause to be published and distributed, among other persons,
to policy holders and prospective policy holders of the said Insular Life Insurance Company,
among other things, a malicious defamation and libel in the Spanish language, of the words
and tenor following:

"First. For some time past various rumors are current to the effect that the Insular
Life Insurance Company is not in as good a condition as i should be at the present
time, and that really it is in bad shape. Nevertheless, the investigations made by the
 representative of the "Bulletin" have failed fully to confirm these rumors. It is known
that the Insular Auditor has examined the books of the company and has found that
its capital has diminished, and that by direction of said official the company has
decided to double the amount of its capital, and also to pay its reserve fund. All this
is true."

That the said circulars, and the matters therein contained hereinbefore set forth in this
information, tend to impeach and have impeached the honesty, virtue, and reputation of the
said Insular Life Insurance Company by exposing it to public hatred, contempt, and ridicule;
that by the matters printed in said circulars, and hereinbefore set forth in this information,
the said defendants West Coast Life Insurance Company, John Northcott, and Manuel C.
Grey meant and intended to state and represent to those to whom the said defendants
delivered said circulars as aforesaid, that the said Insular Life Insurance Company was then
and there in a dangerous financial condition and on the point of going into insolvency, to the
detriment of the policy holders of the said Insular Life Insurance Company, and of those
with whom the said Insular Life Insurance Company have and have had business
transactions, and each and all of said persons to whom the said defendants delivered said
circulars, and all persons as well who read said circulars understood the said matters in
said circulars to have said libelous sense and meaning. Contrary to law.

On the 20th day of December, 1912, the plaintiff, together with the other persons named as accused in said
process through their attorneys, served upon the prosecuting attorney and filed with the clerk of the court a
motion to quash said summons and the service thereof, on the ground that the court had no jurisdiction
over the said company, there being no authority in the court for the issuance of the process, Exhibit B, the
order under which it was issued being void. The court denied the motion and directed plaintiff to appear
before it on the 28th day of December, 1912, and to plead to the information, to which order the plaintiff
then and there duly excepted.

It is alleged in the complaint that "unless restrained by this Court the respondent will proceed to carry out
said void order and compel your petitioner to appear before his court and plead and submit to criminal
prosecution without having acquired any jurisdiction whatever over your petitioner."

The prayer of the complaint is, "your petitioner prays judgment for the issuance of a writ of prohibition
against the respondent, commanding the respondent absolutely to desist or refrain from further
proceedings against your petitioner in the said criminal action."

The basis of the action is that the Court of First Instance has no power or authority, under the laws of the
Philippine Islands, to proceed against a corporation, as such, criminally, to bring it into court for the purpose
of making it amenable to the criminal laws. It is contended that the court had no jurisdiction to issue the
process in evidence against the plaintiff corporation; that the issuance and service thereof upon the plaintiff
corporation were outside of the authority and jurisdiction of the court, were authorized by no law, conferred
no jurisdiction over said corporation, and that they were absolutely void and without force or effect.

The plaintiff, further attacking said process, alleges that the process is a mixture of civil and criminal
process, that it is not properly signed, that it does not direct or require an arrest; that it s an order to appear
and answer on a date certain without restraint of the person, and that it is not in the form required by law.

Section 5 of General Orders, No. 58, defines an information as "accusation in writing charging a period with
a public offense." Section 6 provide that a complaint or information is sufficient it if shows "the name of the
defendant, or if his name cannot be discovered, that he is described under a fictitious name with a
statement that his true name is unknown to the informant or official signing the same. His true name may
be inserted at any stage of the proceedings instituted against him, whenever ascertained." These
provisions, as well as those which relate to arraignment and counsel, and to demurrers and pleas, indicate
clearly that the maker of the Code of Criminal Procedure had no intention or expectation that corporations
would be included among those who would fall within the provisions thereof. The only process known to the
Code of Criminal Procedure, or which any court is by that order authorized to issue, is an order of arrest.
The Code of Criminal Procedure provides that "if the magistrate be satisfied from the investigation that the
crime complained of has been committed, and there is reasonable ground to believe that the party charged
has committed it, he must issue an order for his arrest. If the offense be bailable, and the defendant offer a
sufficient security, he shall be admitted to bail; otherwise he shall be committed to prison." There is no
authority for the issuance of any other process than an order of arrest. As a necessary consequence, the
process issued in the case before us is without express authorization of statute.

The question remains as to whether or not he court may, of itself and on its own motion, create not only a
process but a procedure by which the process may be made effective.
We do not believe that the authority of the courts of the Philippine Islands extends so far. While having the
inherent powers which usually go with courts of general jurisdiction, we are of the opinion that, under the
circumstances of their creation, they have only such authority in criminal matters as is expressly conferred
upon them by statute or which it is necessary to imply from such authority in order to carry out fully and
adequately the express authority conferred. We do not feel that Courts of First Instance have authority to
create new procedure and new processes in criminal law. The exercise of such power verges too closely
on legislation. Even though it be admitted, a question we do not now decide, that there are various penal
laws in the Philippine Islands which corporation as such may violate, still we do not believe that the courts
are authorized to go to the extent of creating special procedure and special processes for the purpose of
carrying out those penal statutes, when the legislature itself has neglected to do so. To bring a corporation
into court criminally requires many additions to the present criminal procedure. While it may be said to be
the duty of courts to see to it that criminals are punished, it is no less their duty to follow prescribed forms of
procedure and to go out upon unauthorized ways or act in an unauthorized manner.

There are many cases cited by counsel for the defendant which show that corporations have been
proceeded against criminally by indictment and otherwise and have been punished as malefactors by the
courts. Of this, of course, there can be no doubt; but it is clear that, in those cases, the statute, by express
words or by necessary intendment, included corporations within the persons who could offend against the
criminal laws; and the legislature, at the same time established a procedure applicable to corporations. No
case has been cited to us where a corporation has been proceeded against under a criminal statute where
the court did not exercise its common law powers or where there was not in force a special procedure
applicable to corporations.

The courts of the Philippine Islands are creatures of statute and, as we have said, have only those powers
conferred upon them by statute and those which are required to exercise that authority fully and
adequately. The courts here have no common law jurisdiction or powers. If they have any powers not
conferred by statute, expressly or impliedly, they would naturally come from Spanish and not from common
law sources. It is undoubted that, under the Spanish criminal law and procedure, a corporation could not
have been proceeded against criminally, as such, if such an entity as a corporation in fact existed under the
Spanish law, and as such it could not have committed a crime in which a willful purpose or a malicious
intent was required. Criminal actions would have been restricted or limited, under that system, to the
officials of such corporations and never would have been directed against the corporation itself. This was
the rule with relation to associations or combinations of persons approaching, more or less, the corporation
as it is now understood, and it would undoubtedly have been the rue with corporations. From this source,
then, the courts derive no authority to bring corporations before them in criminal actions, nor to issue
processes for that purpose.

The case was submitted to this Court on an agreed statement of facts with a stipulation for a decision upon
the merits. We are of the opinion that the plaintiff is entitled, under that stipulation, to the remedy prayed
for.

It is adjudged that the Court of First Instance of the city of Manila be and it is hereby enjoined and
prohibited from proceeding further in the criminal cause which is before us in this proceeding, entitled
United States vs. West Coast Life Insurance Company, a corporation, John Northcott and Manuel C. Grey,
so far as said proceedings relate to the said West Coast Life Insurance Company, a corporation, the
plaintiff in the case.

11. G.R. No. 102970 May 13, 1993 LUZAN SIA, petitioner, vs. COURT OF APPEALS and SECURITY
BANK and TRUST COMPANY, respondents.

The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August
1991, reversing and setting aside the Decision, dated 19 February 1990, of Branch 47 of the Regional Trial
Court (RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST
CO.," is challenged in this petition for review on certiorari under Rule 45 of the Rules Court.

Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp
collection of the plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been rented
from the defendant pursuant to a contract denominated as a Lease Agreement. Judgment therein was
rendered in favor of the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiff and against the defendant, Security Bank & Trust Company, ordering the
defendant bank to pay the plaintiff the sum of —

a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;

 b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral
damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and
legal expenses.
The counterclaim set up by the defendant are hereby dismissed for lack of merit.
No costs.
SO ORDERED.

The antecedent facts of the present controversy are summarized by the public respondent in its challenged
decision as follows:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the
defendant bank at its Binondo Branch located at the Fookien Times Building, Soler
St., Binondo, Manila wherein he placed his collection of stamps. The said safety
deposit box leased by the plaintiff was at the bottom or at the lowest level of the
safety deposit boxes of the defendant bank at its aforesaid Binondo Branch.

During the floods that took place in 1985 and 1986, floodwater entered into the
defendant bank's premises, seeped into the safety deposit box leased by the
plaintiff and caused, according to the plaintiff, damage to his stamps collection. The
defendant bank rejected the plaintiff's claim for compensation for his damaged
stamps collection, so, the plaintiff instituted an action for damages against the
defendant bank.

The defendant bank denied liability for the damaged stamps collection of the plaintiff
on the basis of the "Rules and Regulations Governing the Lease of Safe Deposit
Boxes, particularly paragraphs 9 and 13, which reads (sic):

"9. The liability of the Bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the safe by any person other than the Renter,
his authorized agent or legal representative;

"13. The Bank is not a depository of the contents of the safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever in
said contents, except as herein provided, and it assumes absolutely no liability in
connection therewith."

The defendant bank also contended that its contract with the plaintiff over safety
deposit box No. 54 was one of lease and not of deposit and, therefore, governed by
the lease agreement which should be the applicable law; that the destruction of the
plaintiff's stamps collection was due to a calamity beyond obligation on its part to
notify the plaintiff about the floodwaters that inundated its premises at Binondo
branch which allegedly seeped into the safety deposit box leased to the plaintiff.

The trial court then directed that an ocular inspection on (sic) the contents of the
safety deposit box be conducted, which was done on December 8, 1988 by its clerk
of court in the presence of the parties and their counsels. A report thereon was then
submitted on December 12, 1988 and confirmed in open court by both parties thru
counsel during the hearing on the same date stating:

"That the Safety Box Deposit No. 54 was opened by both plaintiff
Luzan Sia and the Acting Branch Manager Jimmy B. Ynion in the
presence of the undersigned, plaintiff's and defendant's counsel.
Said Safety Box when opened contains two albums of different sizes
and thickness, length and width and a tin box with printed word 'Tai
Ping Shiang Roast Pork in pieces with Chinese designs and
character."

Condition of the above-stated Items —

Both albums are wet, moldy and badly damaged.

1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in
thick. The leaves of the album are attached to every page and cannot be lifted
without destroying it, hence the stamps contained therein are no longer visible.
 2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick.
Some of its pages can still be lifted. The stamps therein can still be distinguished
but beyond restoration. Others have lost its original form.

3. The tin box is rusty inside. It contains an album with several pieces of papers
stuck up to the cover of the box. The condition of the album is the second
abovementioned album." 5

The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court's
decision to the public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737.

In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter
erred in (a) holding that the lease agreement is a contract of adhesion; (b) finding that the defendant had
failed to exercise the required diligence expected of a bank in maintaining the safety deposit box; (c)
awarding to the plaintiff actual damages in the amount of P20,000.00, moral damages in the amount of
P100,000.00 and attorney's fees and legal expenses in the amount of P5,000.00; and (d) dismissing the
counterclaim.

On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby REVERSED and instead the
appellee's complaint is hereby DISMISSED. The appellant bank's counterclaim is
likewise DISMISSED. No costs.

In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and
ruled that:

a) the fine print in the "Lease Agreement) constitutes the terms and conditions of the contract of lease
which the appellee (now petitioner) had voluntarily and knowingly executed with SBTC;

b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit
wherein the bank became a depositary of the subject stamp collection; hence, as contended by SBTC, the
provisions of Book IV, Title XII of the Civil Code on deposits do not apply;

c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's
liability:

9. The liability of the bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the Safe by any person other than the Renter,
his authorized agent or legal representative.

13. The bank is not a depository of the contents of the Safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever in
said contents, except as herein provided, and it assumes absolutely no liability in
connection therewith.

are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy;
and

d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining
the safety deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the
control of SBTC, caused the damage to the stamp collection; said floods were fortuitous events which
SBTC should not be held liable for since it was not shown to have participated in the aggravation of the
damage to the stamp collection; on the contrary, it offered its services to secure the assistance of an expert
in order to save most of the stamps, but the appellee refused; appellee must then bear the lose under the
principle of "res perit domino."

Unsuccessful in his bid to have the above decision reconsidered by the public respondent, petitioner filed
7

the instant petition wherein he contends that:

I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF
THE RESPONDENT COURT WHEN IT RULED THAT RESPONDENT SBTC DID
NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE
 SAFETY DEPOSIT BOX OF THE PETITIONER CONSIDERING THAT
SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE
RESPONDENT FROM ANY LIABILITY WHATSOEVER BY REASON OF THE
PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE
AWARDS OF THE TRIAL COURT FOR ACTUAL AND MORAL DAMAGES,
INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF THE
PETITIONER. 8

We subsequently gave due course the petition and required both parties to submit their respective
memoranda, which they complied with.

Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence
expected of a bank maintaining such safety deposit box . . . in the light of the environmental circumstance
of said safety deposit box after the floods of 1985 and 1986." He argues that such a conclusion is
supported by the evidence on record, to wit: SBTC was fully cognizant of the exact location of the safety
deposit box in question; it knew that the premises were inundated by floodwaters in 1985 and 1986 and
considering that the bank is guarded twenty-four (24) hours a day , it is safe to conclude that it was also
aware of the inundation of the premises where the safety deposit box was located; despite such
knowledge, however, it never bothered to inform the petitioner of the flooding or take any appropriate
measures to insure the safety and good maintenance of the safety deposit box in question.

SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court of
Appeals, when supported by substantial exidence, are not reviewable on appeal by certiorari.

The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity
between the factual findings and conclusions of the Court of Appeals and the trial court. Such a disparity
11

obtains in the present case.

As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement "
covering Safe Deposit Box No. 54 (Exhibit "A and "1") is just that — a contract of lease — and not a
contract of deposit, and that paragraphs 9 and 13 thereof, which expressly limit the bank's liability as
follows:

9. The liability of the bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the Safe by any person other than the Renter,
his autliorized agent or legal representative;

13. The bank is not a depository of the contents of the Safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever said
contents, except as herein provided, and it assumes absolutely no liability in
connection therewith.

are valid and binding upon the parties. In the challenged decision, the public respondent further avers that
even without such a limitation of liability, SBTC should still be absolved from any responsibility for the
damage sustained by the petitioner as it appears that such damage was occasioned by a fortuitous event
and that the respondent bank was free from any participation in the aggravation of the injury.

We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed
with merit.

In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, this Court explicitly rejected
the contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII,
Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly
governed by the Civil Code provision on deposit; it is, as We declared, a special kind of deposit. The
prevailing rule in American jurisprudence — that the relation between a bank renting out safe deposit boxes
and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment for hire
and mutual benefit — has been adopted in this jurisdiction, thus:

In the context of our laws which authorize banking institutions to rent out safety
deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United
States has been adopted. Section 72 of the General Banking Act [R.A. 337, as
amended] pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the
following services:

(a) Receive in custody funds, documents, and valuable objects, and

rent safety deposit boxes for the safequarding of such effects.

The banks shall perform the services permitted under subsections (a), (b) and (c) of
this section as depositories or as agents.

Note that the primary function is still found within the parameters of a contract of
deposit, i.e., the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A
contract of deposit may be entered into orally or in writing (Art. 1969, Civil Code]
and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish
such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order or public
policy. The depositary's responsibility for the safekeeping of the objects deposited in
the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the
depositary would be liable if, in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the agreement. In the absence of
any stipulation prescribing the degree of diligence required, that of a good father of
a family is to be observed. Hence, any stipulation exempting the depositary from
any liability arising from the loss of the thing deposited on account of fraud,
negligence or delay would be void for being contrary to law and public policy. In the
instant case, petitioner maintains that conditions 13 and l4 of the questioned
contract of lease of the safety deposit box, which read:

13. The bank is a depositary of the contents of the safe and it has neither the
possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except as herein
expressly provided, and it assumes absolutely no liability in connection therewith."

are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent with the
respondent Bank's responsibility as a depositary under Section 72 (a) of the
General Banking Act. Both exempt the latter from any liability except as
contemplated in condition 8 thereof which limits its duty to exercise reasonable
diligence only with respect to who shall be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized person
shall be admitted to any rented safe and beyond this, the Bank will
not be responsible for the contents of any safe rented from it.

Furthermore condition 13 stands on a wrong premise and is contrary to the actual

practice of the Bank. It is not correct to assert that the Bank has neither the
possession nor control of the contents of the box since in fact, the safety deposit
box itself is located in its premises and is under its absolute control; moreover, the
respondent Bank keeps the guard key to the said box. As stated earlier, renters
cannot open their respective boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent above stated, the foregoing
conditions in the contract in question are void and ineffective. It has been said:

"With respect to property deposited in a safe-deposit box by a

customer of a safe-deposit company, the parties, since the relation
is a contractual one, may by special contract define their respective
duties or provide for increasing or limiting the liability of the deposit
company, provided such contract is not in violation of law or public
policy. It must clearly appear that there actually was such a special
contract, however, in order to vary the ordinary obligations implied
by law from the relationship of the parties; liability of the deposit
company will not be enlarged or restricted by words of doubtful
meaning. The company, in renting safe-deposit boxes, cannot
exempt itself from liability for loss of the contents by its own fraud or
 negligence or that, of its agents or servants, and if a provision of the
contract may be construed as an attempt to do so, it will be held
ineffective for the purpose. Although it has been held that the lessor
of a safe-deposit box cannot limit its liability for loss of the contents
thereof through its own negligence, the view has been taken that
such a lessor may limit its liability to some extent by agreement or
stipulation.

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA
Agro-Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the
other hand, both condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in the
present case limit the scope of the exercise of due diligence by the banks involved to merely seeing to it
that only the renter, his authorized agent or his legal representative should open or have access to the
safety deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercise
diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agro-
lndustrial Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13 of the
"Lease Agreement" covering the safety deposit box in question must be stricken down for being contrary to
law and public policy as they are meant to exempt SBTC from any liability for damage, loss or destruction
of the contents of the safety deposit box which may arise from its own or its agents' fraud, negligence or
delay. Accordingly, SBTC cannot take refuge under the said conditions.

Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the
stamp collection because the flooding was a fortuitous event and there was no showing of SBTC's
participation in the aggravation of the loss or injury. It states:

Article 1174 of the Civil Code provides:

"Except in cases expressly specified by the law, or when it is

otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.'

Here, the unforeseen or unexpected inundating floods were independent of the will
of the appellant bank and the latter was not shown to have participated in
aggravating damage (sic) to the stamps collection of the appellee. In fact, the
appellant bank offered its services to secure the assistance of an expert to save
most of the then good stamps but the appelle refused and let (sic) these
recoverable stamps inside the safety deposit box until they were ruined.

Both the law and authority cited are clear enough and require no further elucidation. Unfortunately,
however, the public respondent failed to consider that in the instant case, as correctly held by the trial
court, SBTC was guilty of negligence. The facts constituting negligence are enumerated in the petition and
have been summarized in this ponencia. SBTC's negligence aggravated the injury or damage to the stamp
collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters inundated the
room where Safe Deposit Box No. 54 was located. In view thereof, it should have lost no time in notifying
the petitioner in order that the box could have been opened to retrieve the stamps, thus saving the same
from further deterioration and loss. In this respect, it failed to exercise the reasonable care and prudence
expected of a good father of a family, thereby becoming a party to the aggravation of the injury or loss.
Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent Article 1170 of the Civil
Code, which reads:

Those who in the performance of their obligation are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for
damages,

thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the
language of the trial court, the "product of 27 years of patience and diligence" caused the petitioner
21

pecuniary loss; hence, he must be compensated therefor.

We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the
relationship between the petitioner and SBTC is based on a contract, either of them may be held liable for
moral damages for breach thereof only if said party had acted fraudulently or in bad faith. There is here no
proof of fraud or bad faith on the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the
public respondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R.
CV No. 26737, are hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47 of the Regional
Trial Court of Manila in Civil Case No. 87-42601 is hereby REINSTATED in full, except as to the award of
moral damages which is hereby set aside. Costs against the private respondent. SO ORDERED.

12. G.R. No. 131719             May 25, 2004 THE EXECUTIVE SECRETARY et a, petitioners, vs. THE
HON. COURT OF APPEALS and ASIAN RECRUITMENT COUNCIL PHILIPPINE CHAPTER (ARCO-
PHIL.), INC. respondents.

In this petition for review on certiorari, the Executive Secretary of the President of the Philippines, the
Secretary of Justice, the Secretary of Foreign Affairs, the Secretary of Labor and Employment, the POEA
Administrator and the OWWA Administrator, through the Office of the Solicitor General, assail the Decision 1
of the Court of Appeals in CA-G.R. SP No. 38815 affirming the Order 2 of the Regional Trial Court of
Quezon City dated August 21, 1995 in Civil Case No. Q-95-24401, granting the plea of the petitioners
therein for a writ of preliminary injunction and of the writ of preliminary injunction issued by the trial court on
August 24, 1995.

The Antecedents

Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995, took
effect on July 15, 1995. The Omnibus Rules and Regulations Implementing the Migrant Workers and
Overseas Filipino Act of 1995 was, thereafter, published in the April 7, 1996 issue of the Manila Bulletin.
However, even before the law took effect, the Asian Recruitment Council Philippine Chapter, Inc. (ARCO-
Phil.) filed, on July 17, 1995, a petition for declaratory relief under Rule 63 of the Rules of Court with the
Regional Trial Court of Quezon City to declare as unconstitutional Section 2, paragraph (g), Section 6,
paragraphs (a) to (j), (l) and (m), Section 7, paragraphs (a) and (b), and Sections 9 and 10 of the law, with
a plea for the issuance of a temporary restraining order and/or writ of preliminary injunction enjoining the
respondents therein from enforcing the assailed provisions of the law.

In a supplement to its petition, the ARCO-Phil. alleged that Rep. Act No. 8042 was self-executory and that
no implementing rules were needed. It prayed that the court issue a temporary restraining order to enjoin
the enforcement of Section 6, paragraphs (a) to (m) on illegal recruitment, Section 7 on penalties for illegal
recruitment, and Section 9 on venue of criminal actions for illegal recruitments, viz:

Viewed in the light of the foregoing discussions, there appears to be urgent an imperative need for
this Honorable Court to maintain the status quo by enjoining the implementation or effectivity of the
questioned provisions of RA 8042, by way of a restraining order otherwise, the member recruitment
agencies of the petitioner will suffer grave or irreparable damage or injury. With the effectivity of RA
8042, a great majority of the duly licensed recruitment agencies have stopped or suspended their
operations for fear of being prosecuted under the provisions of a law that are unjust and
unconstitutional. This Honorable Court may take judicial notice of the fact that processing of
deployment papers of overseas workers for the past weeks have come to a standstill at the POEA
and this has affected thousands of workers everyday just because of the enactment of RA 8042.
Indeed, this has far reaching effects not only to survival of the overseas manpower supply industry
and the active participating recruitment agencies, the country’s economy which has survived mainly
due to the dollar remittances of the overseas workers but more importantly, to the poor and the
needy who are in dire need of income-generating jobs which can only be obtained from abroad.
The loss or injury that the recruitment agencies will suffer will then be immeasurable and
irreparable. As of now, even foreign employers have already reduced their manpower requirements
from the Philippines due to their knowledge that RA 8042 prejudiced and adversely affected the
local recruitment agencies.3

On August 1, 1995, the trial court issued a temporary restraining order effective for a period of only twenty
(20) days therefrom.

After the petitioners filed their comment on the petition, the ARCO-Phil. filed an amended petition, the
amendments consisting in the inclusion in the caption thereof eleven (11) other corporations which it
alleged were its members and which it represented in the suit, and a plea for a temporary restraining order
enjoining the respondents from enforcing Section 6 subsection (i), Section 6 subsection (k) and paragraphs
15 and 16 thereof, Section 8, Section 10, paragraphs 1 and 2, and Sections 11 and 40 of Rep. Act No.
8042.

The respondent ARCO-Phil. assailed Section 2(g) and (i), Section 6 subsection (a) to (m), Section 7(a) to
(b), and Section 10 paragraphs (1) and (2), quoted as follows:
(g) THE STATE RECOGNIZES THAT THE ULTIMATE PROTECTION TO ALL MIGRANT
WORKERS IS THE POSSESSION OF SKILLS. PURSUANT TO THIS AND AS SOON AS
PRACTICABLE, THE GOVERNMENT SHALL DEPLOY AND/OR ALLOW THE DEPLOYMENT
ONLY OF SKILLED FILIPINO WORKERS.

Sec. 2 subsection (i, 2nd par.)

Nonetheless, the deployment of Filipino overseas workers, whether land-based or sea-based, by

local service contractors and manning agents employing them shall be encourages (sic).
Appropriate incentives may be extended to them.
II. ILLEGAL RECRUITMENT

SEC. 6. Definition. – For purposes of this Act, illegal recruitment shall mean any act of canvassing,
enlisting, contracting, transporting, utilizing, hiring, or procuring workers and includes referring,
contract services, promising or advertising for employment abroad, whether for profit or not, when
undertaken by a non-licensee or non-holder of authority contemplated under Article 13(f) of
Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines:
Provided, That any such non-licensee or non-holder who, in any manner, offers or promises for a
fee employment abroad to two or more persons shall be deemed so engaged. It shall, likewise,
include the following acts, whether committed by any person, whether a non-licensee, non-holder,
licensee or holder of authority:

(a) To charge or accept directly or indirectly any amount greater than that specified in the
schedule of allowable fees prescribed by the Secretary of Labor and Employment, or to
make a worker pay any amount greater than that actually received by him as a loan or
advance;

(b) To furnish or publish any false notice or information or document in relation to

recruitment or employment;

(c) To give any false notice, testimony, information or document or commit any act of
misrepresentation for the purpose of securing a license or authority under the Labor Code;

(d) To induce or attempt to induce a worker already employed to quit his employment in
order to offer him another unless the transfer is designed to liberate a worker from
oppressive terms and conditions of employment;

(e) To influence or attempt to influence any person or entity not to employ any worker who
has not applied for employment through his agency;

(f) To engage in the recruitment or placement of workers in jobs harmful to public health or
morality or to the dignity of the Republic of the Philippines;

(g) To obstruct or attempt to obstruct inspection by the Secretary of Labor and Employment
or by his duly authorized representative;

(h) To fail to submit reports on the status of employment, placement vacancies, remittance
of foreign exchange earnings, separation from jobs, departures and such other matters or
information as may be required by the Secretary of Labor and Employment;

(i) To substitute or alter to the prejudice of the worker, employment contracts approved and
verified by the Department of Labor and Employment from the time of actual signing thereof
by the parties up to and including the period of the expiration of the same without the
approval of the Department of Labor and Employment;

(j) For an officer or agent of a recruitment or placement agency to become an officer or

member of the Board of any corporation engaged in travel agency or to be engaged directly
or indirectly in the management of a travel agency;

(k) To withhold or deny travel documents from applicant workers before departure for
monetary or financial considerations other than those authorized under the Labor Code and
its implementing rules and regulations;
 (l) Failure to actually deploy without valid reason as determined by the Department of Labor
and Employment; and

(m) Failure to reimburse expenses incurred by the worker in connection with his
documentation and processing for purposes of deployment, in cases where the deployment
does not actually take place without the worker’s fault. Illegal recruitment when committed
by a syndicate or in large scale shall be considered an offense involving economic
sabotage.

Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or more
persons conspiring or confederating with one another. It is deemed committed in large scale if
committed against three (3) or more persons individually or as a group.

The persons criminally liable for the above offenses are the principals, accomplices and
accessories. In case of juridical persons, the officers having control, management or direction of
their business shall be liable

SEC. 7. Penalties. –

(a) Any person found guilty of illegal recruitment shall suffer the penalty of imprisonment of not less
than six (6) years and one (1) day but not more than twelve (12) years and a fine of not less than
two hundred thousand pesos (₱200,000.00) nor more than five hundred thousand pesos
(₱500,000.00).

(b) The penalty of life imprisonment and a fine of not less than five hundred thousand pesos
(₱500,000.00) nor more than one million pesos (₱1,000,000.00) shall be imposed if illegal
recruitment constitutes economic sabotage as defined herein.

Provided, however, That the maximum penalty shall be imposed if the person illegally recruited is
less than eighteen (18) years of age or committed by a non-licensee or non-holder of authority.

Sec. 8.

Prohibition on Officials and Employees. – It shall be unlawful for any official or employee of the
Department of Labor and Employment, the Philippine Overseas Employment Administration
(POEA), or the Overseas Workers Welfare Administration (OWWA), or the Department of Foreign
Affairs, or other government agencies involved in the implementation of this Act, or their relatives
within the fourth civil degree of consanguinity or affinity, to engage, directly or indirectly, in the
business of recruiting migrant workers as defined in this Act. The penalties provided in the
immediate preceding paragraph shall be imposed upon them.

Sec. 10, pars. 1 & 2.

Money Claims. – Notwithstanding any provision of law to the contrary, the Labor Arbiters of the
National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to
hear and decide, within ninety (90) calendar days after the filing of the complaint, the claims arising
out of an employer-employee relationship or by virtue of any law or contract involving Filipino
workers for overseas deployment including claims for actual, moral, exemplary and other forms of
damages.

The liability of the principal/employer and the recruitment/placement agency for any and all claims
under this section shall be joint and several. This provision shall be incorporated in the contract for
overseas employment and shall be a condition precedent for its approval. The performance bond to
be filed by the recruitment/placement agency, as provided by law, shall be answerable for all
money claims or damages that may be awarded to the workers. If the recruitment/placement
agency is a juridical being, the corporate officers and directors and partners as the case may be,
shall themselves be jointly and solidarily liable with the corporation or partnership for the aforesaid
claims and damages.

SEC. 11. Mandatory Periods for Resolution of Illegal Recruitment Cases. – The preliminary
investigations of cases under this Act shall be terminated within a period of thirty (30) calendar days
from the date of their filing. Where the preliminary investigation is conducted by a prosecution
officer and a prima facie case is established, the corresponding information shall be filed in court
within twenty-four (24) hours from the termination of the investigation. If the preliminary
 investigation is conducted by a judge and a prima facie case is found to exist, the corresponding
information shall be filed by the proper prosecution officer within forty-eight (48) hours from the date
of receipt of the records of the case.

The respondent averred that the aforequoted provisions of Rep. Act No. 8042 violate Section 1, Article III of
the Constitution.5 According to the respondent, Section 6(g) and (i) discriminated against unskilled workers
and their families and, as such, violated the equal protection clause, as well as Article II, Section 12 6 and
Article XV, Sections 17 and 3(3) of the Constitution.8 As the law encouraged the deployment of skilled
Filipino workers, only overseas skilled workers are granted rights. The respondent stressed that unskilled
workers also have the right to seek employment abroad. According to the respondent, the right of unskilled
workers to due process is violated because they are prevented from finding employment and earning a
living abroad. It cannot be argued that skilled workers are immune from abuses by employers, while
unskilled workers are merely prone to such abuses. It was pointed out that both skilled and unskilled
workers are subjected to abuses by foreign employers. Furthermore, the prohibition of the deployment of
unskilled workers abroad would only encourage fly-by-night illegal recruiters.

According to the respondent, the grant of incentives to service contractors and manning agencies to the
exclusion of all other licensed and authorized recruiters is an invalid classification. Licensed and authorized
recruiters are thus deprived of their right to property and due process and to the "equality of the person." It
is understandable for the law to prohibit illegal recruiters, but to discriminate against licensed and
registered recruiters is unconstitutional.

The respondent, likewise, alleged that Section 6, subsections (a) to (m) is unconstitutional because
licensed and authorized recruitment agencies are placed on equal footing with illegal recruiters. It
contended that while the Labor Code distinguished between recruiters who are holders of licenses and
non-holders thereof in the imposition of penalties, Rep. Act No. 8042 does not make any distinction. The
penalties in Section 7(a) and (b) being based on an invalid classification are, therefore, repugnant to the
equal protection clause, besides being excessive; hence, such penalties are violative of Section 19(1),
Article III of the Constitution. 9 It was also pointed out that the penalty for officers/officials/employees of
recruitment agencies who are found guilty of economic sabotage or large-scale illegal recruitment under
Rep. Act No. 8042 is life imprisonment. Since recruitment agencies usually operate with a manpower of
more than three persons, such agencies are forced to shut down, lest their officers and/or employees be
charged with large scale illegal recruitment or economic sabotage and sentenced to life imprisonment.
Thus, the penalty imposed by law, being disproportionate to the prohibited acts, discourages the business
of licensed and registered recruitment agencies.

The respondent also posited that Section 6(m) and paragraphs (15) and (16), Sections 8, 9 and 10,
paragraph 2 of the law violate Section 22, Article III of the Constitution 10 prohibiting ex-post facto laws and
bills of attainder. This is because the provisions presume that a licensed and registered recruitment agency
is guilty of illegal recruitment involving economic sabotage, upon a finding that it committed any of the
prohibited acts under the law. Furthermore, officials, employees and their relatives are presumed guilty of
illegal recruitment involving economic sabotage upon such finding that they committed any of the said
prohibited acts.

The respondent further argued that the 90-day period in Section 10, paragraph (1) within which a labor
arbiter should decide a money claim is relatively short, and could deprive licensed and registered recruiters
of their right to due process. The period within which the summons and the complaint would be served on
foreign employees and, thereafter, the filing of the answer to the complaint would take more than 90 days.
This would thereby shift on local licensed and authorized recruiters the burden of proving the defense of
foreign employers. Furthermore, the respondent asserted, Section 10, paragraph 2 of the law, which
provides for the joint and several liability of the officers and employees, is a bill of attainder and a violation
of the right of the said corporate officers and employees to due process. Considering that such corporate
officers and employees act with prior approval of the board of directors of such corporation, they should not
be liable, jointly and severally, for such corporate acts.

The respondent asserted that the following provisions of the law are unconstitutional:

SEC. 9. Venue. – A criminal action arising from illegal recruitment as defined herein shall be filed
with the Regional Trial Court of the province or city where the offense was committed or where the
offended party actually resides at the time of the commission of the offense: Provided, That the
court where the criminal action is first filed shall acquire jurisdiction to the exclusion of other courts:
Provided, however, That the aforestated provisions shall also apply to those criminal actions that
have already been filed in court at the time of the effectivity of this Act.
 SEC. 10. Money Claims. – Notwithstanding any provision of law to the contrary, the Labor Arbiters
of the National Labor Relations Commission (NLRC) shall have the original and exclusive
jurisdiction to hear and decide, within ninety (90) calendar days after the filing of the complaint, the
claims arising out of an employer-employee relationship or by virtue of any law or contract involving
Filipino workers for overseas deployment including claims for actual, moral, exemplary and other
forms of damages.

Sec. 40.

The departments and agencies charged with carrying out the provisions of this Act shall, within
ninety (90) days after the effectiviy of this Act, formulate the necessary rules and regulations for its
effective implementation.

According to the respondent, the said provisions violate Section 5(5), Article VIII of the Constitution 11
because they impair the power of the Supreme Court to promulgate rules of procedure.

In their answer to the petition, the petitioners alleged, inter alia, that (a) the respondent has no cause of
action for a declaratory relief; (b) the petition was premature as the rules implementing Rep. Act No. 8042
not having been released as yet; (c) the assailed provisions do not violate any provisions of the
Constitution; and, (d) the law was approved by Congress in the exercise of the police power of the State. In
opposition to the respondent’s plea for injunctive relief, the petitioners averred that:

As earlier shown, the amended petition for declaratory relief is devoid of merit for failure of petitioner to
demonstrate convincingly that the assailed law is unconstitutional, apart from the defect and impropriety of
the petition. One who attacks a statute, alleging unconstitutionality must prove its invalidity beyond
reasonable doubt (Caleon v. Agus Development Corporation, 207 SCRA 748). All reasonable doubts
should be resolved in favor of the constitutionality of a statute (People v. Vera, 65 Phil. 56). This
presumption of constitutionality is based on the doctrine of separation of powers which enjoin upon each
department a becoming respect for the acts of the other departments (Garcia vs. Executive Secretary, 204
SCRA 516 [1991]). Necessarily, the ancillary remedy of a temporary restraining order and/or a writ of
preliminary injunction prayed for must fall. Besides, an act of legislature approved by the executive is
presumed to be within constitutional bounds (National Press Club v. Commission on Elections, 207 SCRA
1).12

After the respective counsels of the parties were heard on oral arguments, the trial court issued on August
21, 1995, an order granting the petitioner’s plea for a writ of preliminary injunction upon a bond of ₱50,000.
The petitioner posted the requisite bond and on August 24, 1995, the trial court issued a writ of preliminary
injunction enjoining the enforcement of the following provisions of Rep. Act No. 8042 pending the
termination of the proceedings:

… Section 2, subsections (g) and (i, 2nd par.); Section 6, subsections (a) to (m), and pars. 15 & 16;
Section 7, subsections (a) & (b); Section 8; Section 9; Section 10; pars. 1 & 2; Section 11; and
Section 40 of Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas
Filipinos Act of 1995. …13

The petitioners filed a petition for certiorari with the Court of Appeals assailing the order and the writ of
preliminary injunction issued by the trial court on the following grounds:

1. Respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-
agencies to be protected by the injunctive relief and/or violation of said rights by the enforcement of
the assailed sections of R.A. 8042;

2. Respondent Judge fixed a ₱50,000 injunction bond which is grossly inadequate to answer for the
damage which petitioner-officials may sustain, should respondent ARCO-PHIL. be finally adjudged
as not being entitled thereto. 14

The petitioners asserted that the respondent is not the real party-in-interest as petitioner in the trial court. It
is inconceivable how the respondent, a non-stock and non-profit corporation, could sustain direct injury as
a result of the enforcement of the law. They argued that if, at all, any damage would result in the
implementation of the law, it is the licensed and registered recruitment agencies and/or the unskilled
Filipino migrant workers discriminated against who would sustain the said injury or damage, not the
respondent. The respondent, as petitioner in the trial court, was burdened to adduce preponderant
evidence of such irreparable injury, but failed to do so. The petitioners further insisted that the petition a
quo was premature since the rules and regulations implementing the law had yet to be promulgated when
such petition was filed. Finally, the petitioners averred that the respondent failed to establish the requisites
for the issuance of a writ of preliminary injunction against the enforcement of the law and the rules and
regulations issued implementing the same.

On December 5, 1997, the appellate court came out with a four-page decision dismissing the petition and
affirming the assailed order and writ of preliminary injunction issued by the trial court. The appellate court,
likewise, denied the petitioners’ motion for reconsideration of the said decision.

The petitioners now come to this Court in a petition for review on certiorari on the following grounds:

1. Private respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-
agencies to be protected by the injunctive relief and/or violation of said rights by the enforcement of
the assailed sections of R.A. 8042;

2. The ₱50,000 injunction bond fixed by the court a quo and sustained by the Court of Appeals is
grossly inadequate to answer for the damage which petitioners-officials may sustain, should private
respondent ARCO-PHIL. be finally adjudged as not being entitled thereto. 15

On February 16, 1998, this Court issued a temporary restraining order enjoining the respondents from
enforcing the assailed order and writ of preliminary injunction.

The Issues

The core issue in this case is whether or not the trial court committed grave abuse of its discretion
amounting to excess or lack of jurisdiction in issuing the assailed order and the writ of preliminary injunction
on a bond of only ₱50,000 and whether or not the appellate court erred in affirming the trial court’s order
and the writ of preliminary injunction issued by it.

The petitioners contend that the respondent has no locus standi. It is a non-stock, non-profit organization;
hence, not the real party-in-interest as petitioner in the action. Although the respondent filed the petition in
the Regional Trial Court in behalf of licensed and registered recruitment agencies, it failed to adduce in
evidence a certified copy of its Articles of Incorporation and the resolutions of the said members authorizing
it to represent the said agencies in the proceedings. Neither is the suit of the respondent a class suit so as
to vest in it a personality to assail Rep. Act No. 8042; the respondent is service-oriented while the
recruitment agencies it purports to represent are profit-oriented. The petitioners assert that the law is
presumed constitutional and, as such, the respondent was burdened to make a case strong enough to
overcome such presumption and establish a clear right to injunctive relief.

The petitioners bewail the ₱50,000 bond fixed by the trial court for the issuance of a writ of preliminary
injunction and affirmed by the appellate court. They assert that the amount is grossly inadequate to answer
for any damages that the general public may suffer by reason of the non-enforcement of the assailed
provisions of the law. The trial court committed a grave abuse of its discretion in granting the respondent’s
plea for injunctive relief, and the appellate court erred in affirming the order and the writ of preliminary
injunction issued by the trial court.

The respondent, for its part, asserts that it has duly established its locus standi and its right to injunctive
relief as gleaned from its pleadings and the appendages thereto. Under Section 5, Rule 58 of the Rules of
Court, it was incumbent on the petitioners, as respondents in the RTC, to show cause why no injunction
should issue. It avers that the injunction bond posted by the respondent was more than adequate to answer
for any injury or damage the petitioners may suffer, if any, by reason of the writ of preliminary injunction
issued by the RTC. In any event, the assailed provisions of Rep. Act No. 8042 exposed its members to the
immediate and irreparable damage of being deprived of their right to a livelihood without due process, a
property right protected under the Constitution.

The respondent contends that the commendable purpose of the law to eradicate illegal recruiters should
not be done at the expense and to the prejudice of licensed and authorized recruitment agencies. The writ
of preliminary injunction was necessitated by the great number of duly licensed recruitment agencies that
had stopped or suspended their business operations for fear that their officers and employees would be
indicted and prosecuted under the assailed oppressive penal provisions of the law, and meted excessive
penalties. The respondent, likewise, urges that the Court should take judicial notice that the processing of
deployment papers of overseas workers have come to a virtual standstill at the POEA.

The Court’s Ruling

The petition is meritorious. The Respondent Has Locus Standi. To File the Petition in the RTC in
Representation of the Eleven Licensed and Registered Recruitment Agencies Impleaded in the Amended
Petition

The modern view is that an association has standing to complain of injuries to its members. This view fuses
the legal identity of an association with that of its members. An association has standing to file suit for its
workers despite its lack of direct interest if its members are affected by the action. An organization has
standing to assert the concerns of its constituents.

In Telecommunications and Broadcast Attorneys of the Philippines v. Commission on Elections, 18 we held

that standing jus tertii would be recognized only if it can be shown that the party suing has some substantial
relation to the third party, or that the right of the third party would be diluted unless the party in court is
allowed to espouse the third party’s constitutional claims.

In this case, the respondent filed the petition for declaratory relief under Rule 64 of the Rules of Court for
and in behalf of its eleven (11) licensed and registered recruitment agencies which are its members, and
which approved separate resolutions expressly authorizing the respondent to file the said suit for and in
their behalf. We note that, under its Articles of Incorporation, the respondent was organized for the
purposes inter alia of promoting and supporting the growth and development of the manpower recruitment
industry, both in the local and international levels; providing, creating and exploring employment
opportunities for the exclusive benefit of its general membership; enhancing and promoting the general
welfare and protection of Filipino workers; and, to act as the representative of any individual, company,
entity or association on matters related to the manpower recruitment industry, and to perform other acts
and activities necessary to accomplish the purposes embodied therein. The respondent is, thus, the
appropriate party to assert the rights of its members, because it and its members are in every practical
sense identical. The respondent asserts that the assailed provisions violate the constitutional rights of its
members and the officers and employees thereof. The respondent is but the medium through which its
individual members seek to make more effective the expression of their voices and the redress of their
grievances.

However, the respondent has no locus standi to file the petition for and in behalf of unskilled workers. We
note that it even failed to implead any unskilled workers in its petition. Furthermore, in failing to implead, as
parties-petitioners, the eleven licensed and registered recruitment agencies it claimed to represent, the
respondent failed to comply with Section 2 of Rule 63 of the Rules of Court. Nevertheless, since the eleven
licensed and registered recruitment agencies for which the respondent filed the suit are specifically named
in the petition, the amended petition is deemed amended to avoid multiplicity of suits.

The Assailed Order and Writ of Preliminary Injunction Is Mooted By Case Law

The respondent justified its plea for injunctive relief on the allegation in its amended petition that its
members are exposed to the immediate and irreparable danger of being deprived of their right to a
livelihood and other constitutional rights without due process, on its claim that a great number of duly
licensed recruitment agencies have stopped or suspended their operations for fear that (a) their officers
and employees would be prosecuted under the unjust and unconstitutional penal provisions of Rep. Act No.
8042 and meted equally unjust and excessive penalties, including life imprisonment, for illegal recruitment
and large scale illegal recruitment without regard to whether the recruitment agencies involved are licensed
and/or authorized; and, (b) if the members of the respondent, which are licensed and authorized, decide to
continue with their businesses, they face the stigma and the curse of being labeled "illegal recruiters." In
granting the respondent’s plea for a writ of preliminary injunction, the trial court held, without stating the
factual and legal basis therefor, that the enforcement of Rep. Act No. 8042, pendente lite, would cause
grave and irreparable injury to the respondent until the case is decided on its merits.

We note, however, that since Rep. Act No. 8042 took effect on July 15, 1995, the Court had, in a catena of
cases, applied the penal provisions in Section 6, including paragraph (m) thereof, and the last two
paragraphs therein defining large scale illegal recruitment committed by officers and/or employees of
recruitment agencies by themselves and in connivance with private individuals, and imposed the penalties
provided in Section 7 thereof, including the penalty of life imprisonment. The Informations therein were filed
after preliminary investigations as provided for in Section 11 of Rep. Act No. 8042 and in venues as
provided for in Section 9 of the said act. In People v. Chowdury we held that illegal recruitment is a crime of
economic sabotage and must be enforced.

In People v. Diaz, we held that Rep. Act No. 8042 is but an amendment of the Labor Code of the
Philippines and is not an ex-post facto law because it is not applied retroactively. In JMM Promotion and
Management, Inc. v. Court of Appeals, the issue of the extent of the police power of the State to regulate a
business, profession or calling vis-à-vis the equal protection clause and the non-impairment clause of the
Constitution were raised and we held, thus:

A profession, trade or calling is a property right within the meaning of our constitutional guarantees.
One cannot be deprived of the right to work and the right to make a living because these rights are
property rights, the arbitrary and unwarranted deprivation of which normally constitutes an
actionable wrong.

Nevertheless, no right is absolute, and the proper regulation of a profession, calling, business or
trade has always been upheld as a legitimate subject of a valid exercise of the police power by the
state particularly when their conduct affects either the execution of legitimate governmental
functions, the preservation of the State, the public health and welfare and public morals. According
to the maxim, sic utere tuo ut alienum non laedas, it must of course be within the legitimate range
of legislative action to define the mode and manner in which every one may so use his own
property so as not to pose injury to himself or others.

In any case, where the liberty curtailed affects at most the rights of property, the permissible scope
of regulatory measures is certainly much wider. To pretend that licensing or accreditation
requirements violates the due process clause is to ignore the settled practice, under the mantle of
the police power, of regulating entry to the practice of various trades or professions. Professionals
leaving for abroad are required to pass rigid written and practical exams before they are deemed fit
to practice their trade. Seamen are required to take tests determining their seamanship. Locally, the
Professional Regulation Commission has begun to require previously licensed doctors and other
professionals to furnish documentary proof that they had either re-trained or had undertaken
continuing education courses as a requirement for renewal of their licenses. It is not claimed that
these requirements pose an unwarranted deprivation of a property right under the due process
clause. So long as professionals and other workers meet reasonable regulatory standards no such
deprivation exists.

Finally, it is a futile gesture on the part of petitioners to invoke the non-impairment clause of the
Constitution to support their argument that the government cannot enact the assailed regulatory
measures because they abridge the freedom to contract. In Philippine Association of Service
Exporters, Inc. vs. Drilon, we held that "[t]he non-impairment clause of the Constitution … must
yield to the loftier purposes targeted by the government." Equally important, into every contract is
read provisions of existing law, and always, a reservation of the police power for so long as the
agreement deals with a subject impressed with the public welfare.

A last point. Petitioners suggest that the singling out of entertainers and performing artists under
the assailed department orders constitutes class legislation which violates the equal protection
clause of the Constitution. We do not agree.

The equal protection clause is directed principally against undue favor and individual or class
privilege. It is not intended to prohibit legislation which is limited to the object to which it is directed
or by the territory in which it is to operate. It does not require absolute equality, but merely that all
persons be treated alike under like conditions both as to privileges conferred and liabilities
imposed. We have held, time and again, that the equal protection clause of the Constitution does
not forbid classification for so long as such classification is based on real and substantial
differences having a reasonable relation to the subject of the particular legislation. If classification is
germane to the purpose of the law, concerns all members of the class, and applies equally to
present and future conditions, the classification does not violate the equal protection guarantee.

The validity of Section 6 of R.A. No. 8042 which provides that employees of recruitment agencies may be
criminally liable for illegal recruitment has been upheld in People v. Chowdury:

As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for
illegal recruitment are the principals, accomplices and accessories. An employee of a company or
corporation engaged in illegal recruitment may be held liable as principal, together with his
employer, if it is shown that he actively and consciously participated in illegal recruitment. It has
been held that the existence of the corporate entity does not shield from prosecution the corporate
agent who knowingly and intentionally causes the corporation to commit a crime. The corporation
obviously acts, and can act, only by and through its human agents, and it is their conduct which the
law must deter. The employee or agent of a corporation engaged in unlawful business naturally
aids and abets in the carrying on of such business and will be prosecuted as principal if, with
knowledge of the business, its purpose and effect, he consciously contributes his efforts to its
conduct and promotion, however slight his contribution may be.
By its rulings, the Court thereby affirmed the validity of the assailed penal and procedural provisions of
Rep. Act No. 8042, including the imposable penalties therefor. Until the Court, by final judgment, declares
that the said provisions are unconstitutional, the enforcement of the said provisions cannot be enjoined.

The RTC Committed Grave Abuse of Its Discretion Amounting to Excess or Lack of Jurisdiction in Issuing
the Assailed Order and the Writ of Preliminary Injunction

The matter of whether to issue a writ of preliminary injunction or not is addressed to the sound discretion of
the trial court. However, if the court commits grave abuse of its discretion in issuing the said writ amounting
to excess or lack of jurisdiction, the same may be nullified via a writ of certiorari and prohibition.

In Social Security Commission v. Judge Bayona, we ruled that a law is presumed constitutional until
otherwise declared by judicial interpretation. The suspension of the operation of the law is a matter of
extreme delicacy because it is an interference with the official acts not only of the duly elected
representatives of the people but also of the highest magistrate of the land.

In Younger v. Harris, Jr., the Supreme Court of the United States emphasized, thus:

Federal injunctions against state criminal statutes, either in their entirety or with respect to their
separate and distinct prohibitions, are not to be granted as a matter of course, even if such statutes
are unconstitutional. No citizen or member of the community is immune from prosecution, in good
faith, for his alleged criminal acts. The imminence of such a prosecution even though alleged to be
unauthorized and, hence, unlawful is not alone ground for relief in equity which exerts its
extraordinary powers only to prevent irreparable injury to the plaintiff who seeks its aid. 752 Beal v.
Missouri Pacific Railroad Corp., 312 U.S. 45, 49, 61 S.Ct. 418, 420, 85 L.Ed. 577.

And similarly, in Douglas, supra, we made clear, after reaffirming this rule, that:

"It does not appear from the record that petitioners have been threatened with any injury other than
that incidental to every criminal proceeding brought lawfully and in good faith …" 319 U.S., at 164,
63 S.Ct., at 881.

The possible unconstitutionality of a statute, on its face, does not of itself justify an injunction against good
faith attempts to enforce it, unless there is a showing of bad faith, harassment, or any other unusual
circumstance that would call for equitable relief. The "on its face" invalidation of statutes has been
described as "manifestly strong medicine," to be employed "sparingly and only as a last resort," and is
generally disfavoured.

To be entitled to a preliminary injunction to enjoin the enforcement of a law assailed to be unconstitutional,

the party must establish that it will suffer irreparable harm in the absence of injunctive relief and must
demonstrate that it is likely to succeed on the merits, or that there are sufficiently serious questions going to
the merits and the balance of hardships tips decidedly in its favor. 34 The higher standard reflects judicial
deference toward "legislation or regulations developed through presumptively reasoned democratic
processes." Moreover, an injunction will alter, rather than maintain, the status quo, or will provide the
movant with substantially all the relief sought and that relief cannot be undone even if the defendant
prevails at a trial on the merits. Considering that injunction is an exercise of equitable relief and authority, in
assessing whether to issue a preliminary injunction, the courts must sensitively assess all the equities of
the situation, including the public interest. In litigations between governmental and private parties, courts go
much further both to give and withhold relief in furtherance of public interest than they are accustomed to
go when only private interests are involved. Before the plaintiff may be entitled to injunction against future
enforcement, he is burdened to show some substantial hardship.

The fear or chilling-effect of the assailed penal provisions of the law on the members of the respondent
does not by itself justify prohibiting the State from enforcing them against those whom the State believes in
good faith to be punishable under the laws:

… Just as the incidental "chilling effect" of such statutes does not automatically render them
unconstitutional, so the chilling effect that admittedly can result from the very existence of certain
laws on the statute books does not in itself justify prohibiting the State from carrying out the
important and necessary task of enforcing these laws against socially harmful conduct that the
State believes in good faith to be punishable under its laws and the Constitution.

It must be borne in mind that subject to constitutional limitations, Congress is empowered to define what
acts or omissions shall constitute a crime and to prescribe punishments therefor. The power is inherent in
Congress and is part of the sovereign power of the State to maintain peace and order. Whatever views
may be entertained regarding the severity of punishment, whether one believes in its efficiency or its futility,
these are peculiarly questions of legislative policy. The comparative gravity of crimes and whether their
consequences are more or less injurious are matters for the State and Congress itself to determine.
Specification of penalties involves questions of legislative policy.

Due process prohibits criminal stability from shifting the burden of proof to the accused, punishing wholly
passive conduct, defining crimes in vague or overbroad language and failing to grant fair warning of illegal
conduct. Class legislation is such legislation which denies rights to one which are accorded to others, or
inflicts upon one individual a more severe penalty than is imposed upon another in like case offending. 45
Bills of attainder are legislative acts which inflict punishment on individuals or members of a particular
group without a judicial trial. Essential to a bill of attainder are a specification of certain individuals or a
group of individuals, the imposition of a punishment, penal or otherwise, and the lack of judicial trial.

Penalizing unlicensed and licensed recruitment agencies and their officers and employees and their
relatives employed in government agencies charged with the enforcement of the law for illegal recruitment
and imposing life imprisonment for those who commit large scale illegal recruitment is not offensive to the
Constitution. The accused may be convicted of illegal recruitment and large scale illegal recruitment only if,
after trial, the prosecution is able to prove all the elements of the crime charged.

The possibility that the officers and employees of the recruitment agencies, which are members of the
respondent, and their relatives who are employed in the government agencies charged in the enforcement
of the law, would be indicted for illegal recruitment and, if convicted sentenced to life imprisonment for large
scale illegal recruitment, absent proof of irreparable injury, is not sufficient on which to base the issuance of
a writ of preliminary injunction to suspend the enforcement of the penal provisions of Rep. Act No. 8042
and avert any indictments under the law.48 The normal course of criminal prosecutions cannot be blocked
on the basis of allegations which amount to speculations about the future.

There is no allegation in the amended petition or evidence adduced by the respondent that the officers
and/or employees of its members had been threatened with any indictments for violations of the penal
provisions of Rep. Act No. 8042. Neither is there any allegation therein that any of its members and/or their
officers and employees committed any of the acts enumerated in Section 6(a) to (m) of the law for which
they could be indicted. Neither did the respondent adduce any evidence in the RTC that any or all of its
members or a great number of other duly licensed and registered recruitment agencies had to stop their
business operations because of fear of indictments under Sections 6 and 7 of Rep. Act No. 8042. The
respondent merely speculated and surmised that licensed and registered recruitment agencies would close
shop and stop business operations because of the assailed penal provisions of the law. A writ of
preliminary injunction to enjoin the enforcement of penal laws cannot be based on such conjectures or
speculations. The Court cannot take judicial notice that the processing of deployment papers of overseas
workers have come to a virtual standstill at the POEA because of the assailed provisions of Rep. Act No.
8042. The respondent must adduce evidence to prove its allegation, and the petitioners accorded a chance
to adduce controverting evidence.

The respondent even failed to adduce any evidence to prove irreparable injury because of the enforcement
of Section 10(1)(2) of Rep. Act No. 8042. Its fear or apprehension that, because of time constraints, its
members would have to defend foreign employees in cases before the Labor Arbiter is based on
speculations. Even if true, such inconvenience or difficulty is hardly irreparable injury.

The trial court even ignored the public interest involved in suspending the enforcement of Rep. Act No.
8042 vis-à-vis the eleven licensed and registered recruitment agencies represented by the respondent. In
People v. Gamboa, we emphasized the primary aim of Rep. Act No. 8042:

Preliminarily, the proliferation of illegal job recruiters and syndicates preying on innocent people
anxious to obtain employment abroad is one of the primary considerations that led to the enactment
of The Migrant Workers and Overseas Filipinos Act of 1995. Aimed at affording greater protection
to overseas Filipino workers, it is a significant improvement on existing laws in the recruitment and
placement of workers for overseas employment. Otherwise known as the Magna Carta of OFWs, it
broadened the concept of illegal recruitment under the Labor Code and provided stiffer penalties
thereto, especially those that constitute economic sabotage, i.e., Illegal Recruitment in Large Scale
and Illegal Recruitment Committed by a Syndicate.

By issuing the writ of preliminary injunction against the petitioners sans any evidence, the trial court
frustrated, albeit temporarily, the prosecution of illegal recruiters and allowed them to continue victimizing
hapless and innocent people desiring to obtain employment abroad as overseas workers, and blocked the
attainment of the salutary policies embedded in Rep. Act No. 8042. It bears stressing that overseas
workers, land-based and sea-based, had been remitting to the Philippines billions of dollars which over the
years had propped the economy.

In issuing the writ of preliminary injunction, the trial court considered paramount the interests of the eleven
licensed and registered recruitment agencies represented by the respondent, and capriciously overturned
the presumption of the constitutionality of the assailed provisions on the barefaced claim of the respondent
that the assailed provisions of Rep. Act No. 8042 are unconstitutional. The trial court committed a grave
abuse of its discretion amounting to excess or lack of jurisdiction in issuing the assailed order and writ of
preliminary injunction. It is for this reason that the Court issued a temporary restraining order enjoining the
enforcement of the writ of preliminary injunction issued by the trial court.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed decision of the appellate
court is REVERSED AND SET ASIDE. The Order of the Regional Trial Court dated August 21, 1995 in
Civil Case No. Q-95-24401 and the Writ of Preliminary Injunction issued by it in the said case on August
24, 1995 are NULLIFIED. No costs. SO ORDERED.

13. G.R. No. L-35262             March 15, 1930 THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,
vs. TAN BOON KONG, defendant-appellee.

This is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining to demurrer to an
information charging the defendant Tan Boon Kong with the violation of section 1458 of Act No. 2711 as
amended. The information reads as follows:

That on and during the four quarters of the year 1924, in the municipality of Iloilo, Province of
Iloilo, Philippine Islands, the said accused, as corporation organized under the laws of the
Philippine Islands and engaged in the purchase and the sale of sugar, "bayon," coprax, and
other native products and as such object to the payment of internal-revenue taxes upon its
sales, did then and there voluntarily, illegally, and criminally declare in 1924 for the purpose of
taxation only the sum of P2,352,761.94, when in truth and in fact, and the accused well knew
that the total gross sales of said corporation during that year amounted to P2543,303.44,
thereby failing to declare for the purpose of taxation the amount of P190,541.50, and
voluntarily and illegally not paying the Government as internal-revenue percentage taxes the
sum of P2,960.12, corresponding to 1½ per cent of said undeclared sales.

The question to be decided is whether the information sets forth facts rendering the defendant, as manager of
the corporation liable criminally under section 2723 of Act No. 2711 for violation of section 1458 of the same
act for the benefit of said corporation. Section 1458 and 2723 read as follows:

SEC. 1458. Payment of percentage taxes — Quarterly reports of earnings. — The percentage
taxes on business shall be payable at the end of each calendar quarter in the amount lawfully
due on the business transacted during each quarter; and it shall be on the duty of every person
conducting a business subject to such tax, within the same period as is allowed for the
payment of the quarterly installments of the fixed taxes without penalty, to make a true and
complete return of the amount of the receipts or earnings of his business during the
preceeding quarter and pay the tax due thereon. . . . (Act No. 2711.)

SEC. 2723. Failure to make true return of receipts and sales. — Any person who, being required
by law to make a return of the amount of his receipts, sales, or business, shall fail or neglect to
make such return within the time required, shall be punished by a fine not exceeding two
thousand pesos or by imprisonment for a term not exceeding one year, or both.

And any such person who shall make a false or fraudulent return shall be punished by a fine
not exceeding ten thousand pesos or by imprisonment for a term not exceeding two years, or
both. (Act No. 2711.)

Apparently, the court below based the appealed ruling on the ground that the offense charged must be
regarded as committed by the corporation and not by its officials or agents. This view is in direct conflict with
the great weight of authority. a corporation can act only through its officers and agent s, and where the
business itself involves a violation of the law, the correct rule is that all who participate in it are liable (Grall and
Ostrand's Case, 103 Va., 855, and authorities there cited.)
In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold that the manager of a diary
corporation was criminally liable for the violation of a statute by the corporation through he was not present
when the offense was committed.

In the present case the information or complaint alleges that he defendant was the manager of a corporation
which was engaged in business as a merchant, and as such manager, he made a false return, for purposes of
taxation, of the total amount of sale made by said false return constitutes a violation of law, the defendant, as
the author of the illegal act, must necessarily answer for its consequences, provided that the allegation are
proven.

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will
be returned to said court for further proceedings not inconsistent with our view as hereinafter stated. Without
costs. So ordered

14. G. R. No. 164317             February 6, 2006 ALFREDO CHING, Petitioner, vs. THE SECRETARY
OF JUSTICE, ASST. and THE PEOPLE OF THE PHILIPPINES, Respondents.

Before the Court is a petition for review on certiorari of the Decision 1 of the Court of Appeals (CA) in CA-
G.R. SP No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner
Alfredo Ching, and its Resolution dated June 28, 2004 denying the motion for reconsideration thereof.

Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September
to October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation
(respondent bank) for the issuance of commercial letters of credit to finance its importation of assorted
goods.

Respondent bank approved the application, and irrevocable letters of credit were issued in favor of
petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts as
surety, acknowledging delivery of the following goods:

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but
not by way of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the
proceeds thereof as soon as received, to apply against the relative acceptances and payment of other
indebtedness to respondent bank. In case the goods remained unsold within the specified period, the
goods were to be returned to respondent bank without any need of demand. Thus, said "goods,
manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or accounts
separate and capable of identification" were respondent bank’s property.

When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their
value amounting to ₱6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa 6
against petitioner in the Office of the City Prosecutor of Manila.

After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article
315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115,
otherwise known as the Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner
before the Regional Trial Court (RTC) of Manila. The cases were docketed as Criminal Cases No. 86-
42169 to 86-42181, raffled to Branch 31 of said court.

Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was
dismissed in a Resolution dated March 17, 1987, and petitioner moved for its reconsideration. On
December 23, 1987, the Minister of Justice granted the motion, thus reversing the previous resolution
finding probable cause against petitioner. The City Prosecutor was ordered to move for the withdrawal of
the Informations.

This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24,
1988.9 The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground
that the material allegations therein did not amount to estafa.

In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoñez, holding that the
penal provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt;
it is not limited to transactions involving goods which are to be sold (retailed), reshipped, stored or
processed as a component of a product ultimately sold. The Court also ruled that "the non-payment of the
amount covered by a trust receipt is an act violative of the obligation of the entrustee to pay.
On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before
the Office of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.

Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no
probable cause to charge petitioner with violating P.D. No. 115, as petitioner’s liability was only civil, not
criminal, having signed the trust receipts as surety. Respondent bank appealed the resolution to the
Department of Justice (DOJ) via petition for review, alleging that the City Prosecutor erred in ruling:

1. That there is no evidence to show that respondent participated in the misappropriation of

the goods subject of the trust receipts;
2. That the respondent is a mere surety of the trust receipts; and
3. That the liability of the respondent is only civil in nature.

On July 13, 1999, the Secretary of Justice issued Resolution No. 250 granting the petition and reversing
the assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior
Vice-President of PBMI, executed the 13 trust receipts and as such, was the one responsible for the
offense. Thus, the execution of said receipts is enough to indict the petitioner as the official responsible for
violation of P.D. No. 115. The Justice Secretary also declared that petitioner could not contend that P.D.
No. 115 covers only goods ultimately destined for sale, as this issue had already been settled in Allied
Banking Corporation v. Ordoñez, where the Court ruled that P.D. No. 115 is "not limited to transactions in
goods which are to be sold (retailed), reshipped, stored or processed as a component of a product
ultimately sold but covers failure to turn over the proceeds of the sale of entrusted goods, or to return said
goods if unsold or not otherwise disposed of in accordance with the terms of the trust receipts."

The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts
not only as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two
(2) ways: first, as surety as determined by the Supreme Court in its decision in Rizal Commercial Banking
Corporation v. Court of Appeals; and second, as the corporate official responsible for the offense under
P.D. No. 115, via criminal prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of
corporate officers "without prejudice to the civil liabilities arising from the criminal offense." Thus, according
to the Justice Secretary, following Rizal Commercial Banking Corporation, the civil liability imposed is
clearly separate and distinct from the criminal liability of the accused under P.D. No. 115.

Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations
against petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as
Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court.
Petitioner filed a motion for reconsideration, which the Secretary of Justice denied in a Resolution dated
January 17, 2000.

Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions
of the Secretary of Justice on the following grounds:

1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE
ACTING OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS
PROSECUTION DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO
PROVE HIS PARTICIPATION IN THE ALLEGED TRANSACTIONS.

2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE

ABUSE OF DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY
CONTINUED PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIME
INCURRED IN THE TERMINATION OF THE PRELIMINARY INVESTIGATION THAT
SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.

3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY

PROSECUTOR ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO AN
EXCESS OF JURISDICTION WHEN THEY CONTINUED THE PROSECUTION OF THE
PETITIONER DESPITE LACK OF SUFFICIENT BASIS.

In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no
action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any
tribunal or agency. It is finally certified that if the affiant should learn that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of
any other tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5) days from
such notice.
In its Comment on the petition, the Office of the Solicitor General alleged that -
A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO
CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF
PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE
315, PAR. 1(B) OF THE REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONER’S CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE
CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORA RI, PROHIBITION AND MANDAMUS IS
NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE
DEPARTMENT OF JUSTICE. THE PRESENT PETITION MUST THEREFORE BE
DISMISSED.

On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural
grounds. On the procedural issue, it ruled that (a) the certification of non-forum shopping executed by
petitioner and incorporated in the petition was defective for failure to comply with the first two of the three-
fold undertakings prescribed in Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b) the
petition for certiorari, prohibition and mandamus was not the proper remedy of the petitioner.

On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were
correctly issued for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the
signatory to the trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the
petitioner, on whether he violated P.D. No. 115 by his actuations, had already been resolved and laid to
rest in Allied Bank Corporation v. Ordoñez; and (c) petitioner was estopped from raising the

City Prosecutor’s delay in the final disposition of the preliminary investigation because he failed to do so in
the DOJ.

Thus, petitioner filed the instant petition, alleging that:

I
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE
GROUND THAT THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED
THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS
COMMITTED BY THE SECRETARY OF JUSTICE IN COMING OUT WITH THE
ASSAILED RESOLUTIONS.

The Court will delve into and resolve the issues seriatim.

The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the
rules of procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of
Court should be construed liberally especially when, as in this case, his substantial rights are adversely
affected; hence, the deficiency in his certification of non-forum shopping should not result in the dismissal
of his petition.

The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the
certificate of non-forum shopping incorporated in the petition before the CA is defective because it failed to
disclose essential facts about pending actions concerning similar issues and parties. It asserts that
petitioner’s failure to comply with the Rules of Court is fatal to his petition. The OSG cited Section 2, Rule
42, as well as the ruling of this Court in Melo v. Court of Appeals.

We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his
petition before the appellate court is defective. The certification reads:

It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court,
the Court of Appeals or different divisions thereof, or any tribunal or agency.

It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal
or agency, it hereby undertakes to notify this Honorable Court within five (5) days from such notice.
Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be
accompanied by a sworn certification of non-forum shopping, as provided in the third paragraph of Section
3, Rule 46 of said Rules. The latter provision reads in part:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. — The petition shall
contain the full names and actual addresses of all the petitioners and respondents, a concise statement of
the matters involved, the factual background of the case and the grounds relied upon for the relief prayed
for.

The petitioner shall also submit together with the petition a sworn certification that he has not theretofore
commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or
different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he
must state the status of the same; and if he should thereafter learn that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or
any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or
agency thereof within five (5) days therefrom.

Compliance with the certification against forum shopping is separate from and independent of the
avoidance of forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply
with the foregoing requirement shall be sufficient ground for the dismissal of the petition without prejudice,
unless otherwise provided.

Indubitably, the first paragraph of petitioner’s certification is incomplete and unintelligible. Petitioner failed to
certify that he "had not heretofore commenced any other action involving the same issues in the Supreme
Court, the Court of Appeals or the different divisions thereof or any other tribunal or agency" as required by
paragraph 4, Section 3, Rule 46 of the Revised Rules of Court.

We agree with petitioner’s contention that the certification is designed to promote and facilitate the orderly
administration of justice, and therefore, should not be interpreted with absolute literalness. In his works on
the Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states that, with
respect to the contents of the certification which the pleader may prepare, the rule of substantial
compliance may be availed of. However, there must be a special circumstance or compelling reason which
makes the strict application of the requirement clearly unjustified. The instant petition has not alleged any
such extraneous circumstance. Moreover, as worded, the certification cannot even be regarded as
substantial compliance with the procedural requirement. Thus, the CA was not informed whether, aside
from the petition before it, petitioner had commenced any other action involving the same issues in other
tribunals.

On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice
committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa
under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the
appellate court ratiocinated:

Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive
enough to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion
in coming out with his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-
President of the PBMI, there is no iota of evidence that he was a participes crimines in violating the trust
receipts sued upon; and that his liability, if at all, is purely civil because he signed the said trust receipts
merely as a xxx surety and not as the entrustee. These assertions are, however, too dull that they cannot
even just dent the findings of the respondent Secretary, viz:

it is apropos to quote section 13 of PD 115 which states in part, viz:

If the violation or offense is committed by a corporation, partnership, association or other judicial entities,
the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from
the criminal offense.’

"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen
(13) trust receipts. As such, the law points to him as the official responsible for the offense. Since a
corporation cannot be proceeded against criminally because it cannot commit crime in which personal
violence or malicious intent is required, criminal action is limited to the corporate agents guilty of an act
amounting to a crime and never against the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil.
401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is enough to
indict him as the official responsible for violation of PD 115.
Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately
destined for sale and not goods, like those imported by PBM, for use in manufacture. This issue has
already been settled in the Allied Banking Corporation case, supra, where he was also a party, when the
Supreme Court ruled that PD 115 is ‘not limited to transactions in goods which are to be sold (retailed),
reshipped, stored or processed as a component or a product ultimately sold’ but ‘covers failure to turn over
the proceeds of the sale of entrusted goods, or to return said goods if unsold or disposed of in accordance
with the terms of the trust receipts.’

In regard to the other assigned errors, we note that the respondent bound himself under the terms of the
trust receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two
(2) capacities which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first,
as surety as determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA
739; and, secondly, as the corporate official responsible for the offense under PD 115, the present case is
an appropriate remedy under our penal law.

Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil
liabilities arising from the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs. Court
of Appeals case is clearly separate and distinct from his criminal liability under PD 115.

Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction between PBMI
and respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in
his capacity as PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI,
hence, could not have committed any dishonesty or abused the confidence of respondent bank; and (d)
PBMI acquired the goods and used the same in operating its machineries and equipment and not for
resale.

The OSG, for its part, submits a contrary view, to wit:

34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing
charged as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held
criminally liable as the transactions sued upon were clearly entered into in his capacity as an officer of the
corporation" and that [h]e never received the goods as an entrustee for PBM as he never had or took
possession of the goods nor did he commit dishonesty nor "abuse of confidence in transacting with RCBC."
Such argument is bereft of merit.

35. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from
any liability. Petitioner’s responsibility as the corporate official of PBM who received the goods in trust is
premised on Section 13 of P.D. No. 115, which provides:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or
as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three
thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the
violation or offense is committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from
the criminal offense. (Emphasis supplied)

36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for
PBM, it was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of
the PBM’s violation of P.D. No. 115.

The ruling of the CA is correct.

In Mendoza-Arce v. Office of the Ombudsman (Visayas), this Court held that the acts of a quasi-judicial
officer may be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary
to afford adequate protection to the constitutional rights of the accused; (b) when necessary for the orderly
administration of justice; (c) when the acts of the officer are without or in excess of authority; (d) where the
charges are manifestly false and motivated by the lust for vengeance; and (e) when there is clearly no
prima facie case against the accused. The Court also declared that, if the officer conducting a preliminary
investigation (in that case, the Office of the Ombudsman) acts without or in excess of his authority and
resolves to file an Information despite the absence of probable cause, such act may be nullified by a writ of
certiorari.
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, the Information shall be
prepared by the Investigating Prosecutor against the respondent only if he or she finds probable cause to
hold such respondent for trial. The Investigating Prosecutor acts without or in excess of his authority under
the Rule if the Information is filed against the respondent despite absence of evidence showing probable
cause therefor. If the Secretary of Justice reverses the Resolution of the Investigating Prosecutor who
found no probable cause to hold the respondent for trial, and orders such prosecutor to file the Information
despite the absence of probable cause, the Secretary of Justice acts contrary to law, without authority
and/or in excess of authority. Such resolution may likewise be nullified in a petition for certiorari under Rule
65 of the Revised Rules of Civil Procedure.

A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive
prosecution, is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is
probable cause to believe that the accused is guilty thereof. It is a means of discovering the person or
persons who may be reasonably charged with a crime. Probable cause need not be based on clear and
convincing evidence of guilt, as the investigating officer acts upon probable cause of reasonable belief.
Probable cause implies probability of guilt and requires more than bare suspicion but less than evidence
which would justify a conviction. A finding of probable cause needs only to rest on evidence showing that
more likely than not, a crime has been committed by the suspect.

However, while probable cause should be determined in a summary manner, there is a need to examine
the evidence with care to prevent material damage to a potential accused’s constitutional right to liberty and
the guarantees of freedom and fair play and to protect the State from the burden of unnecessary expenses
in prosecuting alleged offenses and holding trials arising from false, fraudulent or groundless charges.

In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion
in issuing the assailed resolutions. Indeed, he acted in accord with law and the evidence.

Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this
Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another
person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or
security interests over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter’s execution and delivery to the entruster of a signed document
called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or
instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount
owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves
if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the
trust receipt, or for other purposes substantially equivalent to any of the following:

1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale; Provided, That, in the
case of goods delivered under trust receipt for the purpose of manufacturing or processing
before its ultimate sale, the entruster shall retain its title over the goods whether in its
original or processed form until the entrustee has complied fully with his obligation under
the trust receipt; or (c) to load, unload, ship or otherwise deal with them in a manner
preliminary or necessary to their sale; or

2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver

them to a principal; or c) to effect the consummation of some transactions involving delivery
to a depository or register; or d) to effect their presentation, collection or renewal.

The sale of goods, documents or instruments by a person in the business of selling goods, documents or
instruments for profit who, at the outset of the transaction, has, as against the buyer, general property
rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title
or other interest as security for the payment of the purchase price, does not constitute a trust receipt
transaction and is outside the purview and coverage of this Decree.

An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt
transaction, and any successor in interest of such person for the purpose of payment specified in the trust
receipt agreement. The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the
entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt;
(2) receive the proceeds in trust for the entruster and turn over the same to the entruster to the extent of
the amount owing to the entruster or as appears on the trust receipt; (3) insure the goods for their total
value against loss from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof
whether in money or whatever form, separate and capable of identification as property of the entruster; (5)
return the goods, documents or instruments in the event of non-sale or upon demand of the entruster; and
(6) observe all other terms and conditions of the trust receipt not contrary to the provisions of the decree.

The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments
released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as
appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale,
and to the enforcement of all other rights conferred on him in the trust receipt; provided, such are not
contrary to the provisions of the document.41

In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt
transactions envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to
PBMI under the trust receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement
was as follows:

And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property
with liberty to sell the same within ____days from the date of the execution of this Trust Receipt and for the
Bank’s account, but without authority to make any other disposition whatsoever of the said goods or any
part thereof (or the proceeds) either by way of conditional sale, pledge or otherwise.

I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other
casualties as directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the
understanding that the BANK is, not to be chargeable with the storage premium or insurance or any other
expenses incurred on said goods.

In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to
apply against the relative acceptances (as described above) and for the payment of any other
indebtedness of mine/ours to the BANK. In case of non-sale within the period specified herein, I/we agree
to return the goods under this Trust Receipt to the BANK without any need of demand.

I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of
money or bills, receivables, or accounts separate and capable of identification as property of the BANK.

It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public
policy, the failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt or
to return said goods, if not sold, is a public nuisance to be abated by the imposition of penal sanctions.

The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods
procured as a component of a product ultimately sold has been resolved in the affirmative in Allied Banking
Corporation v. Ordoñez. The law applies to goods used by the entrustee in the operation of its machineries
and equipment. The non-payment of the amount covered by the trust receipts or the non-return of the
goods covered by the receipts, if not sold or otherwise not disposed of, violate the entrustee’s obligation to
pay the amount or to return the goods to the entruster.

In Colinares v. Court of Appeals, the Court declared that there are two possible situations in a trust receipt
transaction. The first is covered by the provision which refers to money received under the obligation
involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by
the provision which refers to merchandise received under the obligation to return it (devolvera) to the
owner. Thus, failure of the entrustee to turn over the proceeds of the sale of the goods covered by the trust
receipts to the entruster or to return said goods if they were not disposed of in accordance with the terms of
the trust receipt is a crime under P.D. No. 115, without need of proving intent to defraud. The law punishes
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of the entruster,
regardless of whether the latter is the owner or not. A mere failure to deliver the proceeds of the sale of the
goods, if not sold, constitutes a criminal offense that causes prejudice, not only to another, but more to the
public interest.

The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI
and had no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115.

The penalty clause of the law, Section 13 of P.D. No. 115 reads:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or
as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three
thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the 1âwphi1

violation or offense is committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from
the criminal offense.

The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b),
Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a
corporation or other juridical entity or by natural persons. However, the penalty for the crime is
imprisonment for the periods provided in said Article 315, which reads:

ARTICLE 315. Swindling (estafa). – Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:

1st. The penalty of prision correccional in its maximum period to prision mayor in its
minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed
22,000 pesos; and if such amount exceeds the latter sum, the penalty provided in this
paragraph shall be imposed in its maximum period, adding one year for each additional
10,000 pesos; but the total penalty which may be imposed shall not exceed twenty years. In
such cases, and in connection with the accessory penalties which may be imposed and for
the purpose of the other provisions of this Code, the penalty shall be termed prision mayor
or reclusion temporal, as the case may be;

2nd. The penalty of prision correccional in its minimum and medium periods, if the amount
of the fraud is over 6,000 pesos but does not exceed 12,000 pesos;

3rd. The penalty of arresto mayor in its maximum period to prision correccional in its
minimum period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and

4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos,
provided that in the four cases mentioned, the fraud be committed by any of the following means; xxx

Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or
other officers or persons responsible for the offense, without prejudice to the civil liabilities of such
corporation and/or board of directors, officers, or other officials or employees responsible for the offense.
The rationale is that such officers or employees are vested with the authority and responsibility to devise
means necessary to ensure compliance with the law and, if they fail to do so, are held criminally
accountable; thus, they have a responsible share in the violations of the law.

If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other
officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because
of the nature of the crime and the penalty therefor. A corporation cannot be arrested and imprisoned;
hence, cannot be penalized for a crime punishable by imprisonment. However, a corporation may be
charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both fine
and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined.

A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A
necessary part of the definition of every crime is the designation of the author of the crime upon whom the
penalty is to be inflicted. When a criminal statute designates an act of a corporation or a crime and
prescribes punishment therefor, it creates a criminal offense which, otherwise, would not exist and such
can be committed only by the corporation. But when a penal statute does not expressly apply to
corporations, it does not create an offense for which a corporation may be punished. On the other hand, if
the State, by statute, defines a crime that may be committed by a corporation but prescribes the penalty
therefor to be suffered by the officers, directors, or employees of such corporation or other persons
responsible for the offense, only such individuals will suffer such penalty. Corporate officers or employees,
through whose act, default or omission the corporation commits a crime, are themselves individually guilty
of the crime.

The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to
those corporate agents who themselves commit the crime and to those, who, by virtue of their managerial
positions or other similar relation to the corporation, could be deemed responsible for its commission, if by
virtue of their relationship to the corporation, they had the power to prevent the act. Moreover, all parties
active in promoting a crime, whether agents or not, are principals. Whether such officers or employees are
benefited by their delictual acts is not a touchstone of their criminal liability. Benefit is not an operative fact.

In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the
separate corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer
cannot protect himself behind a corporation where he is the actual, present and efficient actor. IN LIGHT
OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner. SO
ORDERED.

15. .R. No. 173807               April 16, 2009 JAIME U. GOSIACO, Petitioner, vs. LETICIA CHING and
EDWIN CASTA, Respondents.

The right to recover due and demandable pecuniary obligations incurred by juridical persons such as
corporations cannot be impaired by procedural rules. Our rules of procedure governing the litigation of
criminal actions for violation of Batas Pambansa Blg. 22 (B.P. 22) have given the appearance of impairing
such substantive rights, and we take the opportunity herein to assert the necessary clarifications.

Before us is a Rule 45 petition1 which seeks the reversal of the Decision of the Court of Appeals in CA-GR
No. 29488. The Court of Appeals' decision affirmed the decision of the Regional Trial Court of Pasig,
Branch 68 in Criminal Case No. 120482. The RTC's decision reversed the decision of the Metropolitan Trial
Court of San Juan, Branch 58 in Criminal Case No. 70445 which involved a charge of violation of B.P. Blg.
22 against respondents Leticia Ching and Edwin Casta.

On 16 February 2000, petitioner Jaime Gosiaco (petitioner) invested ₱8,000,000.00 with ASB Holdings,
Inc. (ASB) by way of loan. The money was loaned to ASB for a period of 48 days with interest at 10.5%
which is equivalent to ₱112,000.00. In exchange, ASB through its Business Development Operation Group
manager Ching, issued DBS checks no. 0009980577 and 0009980578 for ₱8,000,000.00 and ₱112,000.00
respectively. The checks, both signed by Ching, were drawn against DBS Bank Makati Head Office branch.
ASB, through a letter dated 31 March 2000, acknowledged that it owed petitioner the abovementioned
amounts.

Upon maturity of the ASB checks, petitioner went to the DBS Bank San Juan Branch to deposit the two (2)
checks. However, upon presentment, the checks were dishonored and payments were refused because of
a stop payment order and for insufficiency of funds. Petitioner informed respondents, through letters dated
6 and 10 April 2000, about the dishonor of the checks and demanded replacement checks or the return of
the money placement but to no avail. Thus, petitioner filed a criminal complaint for violation of B.P. Blg. 22
before the Metropolitan Trial Court of San Juan against the private respondents.

Ching was arraigned and tried while Casta remained at large. Ching denied liability and claimed that she
was a mere employee of ASB. She asserted that she did not have knowledge as to how much money ASB
had in the banks. Such responsibility, she claimed belonged to another department.

On 15 December 2000, petitioner moved that ASB and its president, Luke Roxas, be impleaded as party
defendants. Petitioner, then, paid the corresponding docket fees. However, the MTC denied the motion as
the case had already been submitted for final decision.

On 8 February 2001, the MTC acquitted Ching of criminal liability but it did not absolve her from civil
liability. The MTC ruled that Ching, as a corporate officer of ASB, was civilly liable since she was a
signatory to the checks.

Both petitioner and Ching appealed the ruling to the RTC. Petitioner appealed to the RTC on the ground
that the MTC failed to hold ASB and Roxas either jointly or severally liable with Ching. On the other hand,
Ching moved for a reconsideration which was subsequently denied. Thereafter, she filed her notice of
appeal on the ground that she should not be held civilly liable for the bouncing checks because they were
contractual obligations of ASB.

On 12 July 2005, the RTC rendered its decision sustaining Ching's appeal. The RTC affirmed the MTC’s
ruling which denied the motion to implead ASB and Roxas for lack of jurisdiction over their persons. The
RTC also exonerated Ching from civil liability and ruled that the subject obligation fell squarely on ASB.
Thus, Ching should not be held civilly liable.

Petitioner filed a petition for review with the Court of Appeals on the grounds that the RTC erred in
absolving Ching from civil liability; in upholding the refusal of the MTC to implead ASB and Roxas; and in
refusing to pierce the corporate veil of ASB and hold Roxas liable.
On 19 July 2006, the Court of Appeals affirmed the decision of the RTC and stated that the amount
petitioner sought to recover was a loan made to ASB and not to Ching. Roxas’ testimony further bolstered
the fact that the checks issued by Ching were for and in behalf of ASB. The Court of Appeals ruled that
ASB cannot be impleaded in a B.P. Blg. 22 case since it is not a natural person and in the case of Roxas,
he was not the subject of a preliminary investigation. Lastly, the Court of Appeals ruled that there was no
need to pierce the corporate veil of ASB since none of the requisites were present.

Hence this petition.

Petitioner raised the following issues: (1) is a corporate officer who signed a bouncing check civilly liable
under B.P. Blg. 22; (2) can a corporation be impleaded in a B.P. Blg. 22 case; and (3) is there a basis to
pierce the corporate veil of ASB?

B.P. Blg. 22 is popularly known as the Bouncing Checks Law. Section 1 of B.P. Blg. 22 provides:

Where the check is drawn by a corporation, company or entity, the person or persons, who actually signed
the check in behalf of such drawer shall be liable under this Act.

B.P. Blg. 22 was enacted to address the rampant issuance of bouncing checks as payment for pre-existing
obligations. The circulation of bouncing checks adversely affected confidence in trade and commerce. The
State criminalized such practice because it was deemed injurious to public interests and was found to be
pernicious and inimical to public welfare. B.P. Blg. 22 punishes the act of making and issuing bouncing
checks. It is the act itself of issuing the checks which is considered malum prohibitum. The law is an
offense against public order and not an offense against property. It penalizes the issuance of a check
without regard to its purpose. It covers all types of checks. Even checks that were issued as a form of
deposit or guarantee were held to be within the ambit of B.P. Blg. 22. vvphi1.zw+

When a corporate officer issues a worthless check in the corporate name he may be held personally liable
for violating a penal statute. The statute imposes criminal penalties on anyone who with intent to defraud
another of money or property, draws or issues a check on any bank with knowledge that he has no
sufficient funds in such bank to meet the check on presentment. Moreover, the personal liability of the
corporate officer is predicated on the principle that he cannot shield himself from liability from his own acts
on the ground that it was a corporate act and not his personal act. As we held in Llamado v. Court of
Appeals:

Petitioner's argument that he should not be held personally liable for the amount of the check because it
was a check of the Pan Asia Finance Corporation and he signed the same in his capacity as Treasurer of
the corporation, is also untenable. The third paragraph of Section 1 of BP Blg. 22 states: "Where the check
is drawn by a corporation, company or entity, the person or persons who actually signed the check in
behalf of such drawer shall be liable under this Act."

The general rule is that a corporate officer who issues a bouncing corporate check can only be held civilly
liable when he is convicted. In the recent case of Bautista v. Auto Plus Traders Inc., the Court ruled
decisively that the civil liability of a corporate officer in a B.P. Blg. 22 case is extinguished with the criminal
liability. We are not inclined through this case to revisit so recent a precedent, and the rule of stare decisis
precludes us to discharge Ching of any civil liability arising from the B.P. Blg. 22 case against her, on
account of her acquittal in the criminal charge.

We recognize though the bind entwining the petitioner. The records clearly show that it is ASB is civilly
obligated to petitioner. In the various stages of this case, petitioner has been proceeding from the

premise that he is unable to pursue a separate civil action against ASB itself for the recovery of the
amounts due from the subject checks. From this premise, petitioner sought to implead ASB as a defendant
to the B.P. Blg. 22 case, even if such case is criminal in nature.

What supplied the notion to the petitioner that he was unable to pursue a separate civil action against
ASB? He cites the Revised Rules on Criminal Procedure, particularly the provisions involving B.P. Blg. 22
cases, which state that:

Rule 111, Section 1—Institution of criminal and civil action.

(b) The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to include the
corresponding civil action. No reservation to file such civil action separately shall be allowed.
Upon filing of the aforesaid joint criminal and civil actions, the offended party shall pay in full the filing fees
based on the amount of the check involved, which shall be considered as the actual damages claimed.
Where the complainant or information also seeks to recover liquidated, moral, nominal, temperate or
exemplary damages, the offended party shall pay the filing fees based on the amounts alleged therein. If
the amounts are not so alleged but any of these damages are subsequently awarded by the court, the filing
fees based on the amount awarded shall constitute a first lien on the judgment.

Where the civil action has been filed separately and trial thereof has not yet commenced, it may be
consolidated with the criminal action upon application with the court trying the latter case. If the application
is granted, the trial of both actions shall proceed in accordance with section 2 of this Rule governing
consolidation of the civil and criminal actions.23

We are unable to agree with petitioner that he is entitled to implead ASB in the B.P. Blg. 22 case, or any
other corporation for that matter, even if the Rules require the joint trial of both the criminal and civil liability.
A basic maxim in statutory construction is that the interpretation of penal laws is strictly construed against
the State and liberally construed against the accused. Nowhere in B.P. Blg. 22 is it provided that a juridical
person may be impleaded as an accused or defendant in the prosecution for violations of that law, even in
the litigation of the civil aspect thereof.

Nonetheless, the substantive right of a creditor to recover due and demandable obligations against a
debtor-corporation cannot be denied or diminished by a rule of procedure. Technically, nothing in Section
1(b) of Rule 11 prohibits the reservation of a separate civil action against the juridical person on whose
behalf the check was issued. What the rules prohibit is the reservation of a separate civil

action against the natural person charged with violating B.P. Blg. 22, including such corporate officer who
had signed the bounced check.

In theory the B.P. Blg. 22 criminal liability of the person who issued the bouncing check in behalf of a
corporation stands independent of the civil liability of the corporation itself, such civil liability arising from the
Civil Code. B.P. Blg. 22 itself fused this criminal liability of the signer of the check in behalf of the
corporation with the corresponding civil liability of the corporation itself by allowing the complainant to
recover such civil liability not from the corporation, but from the person who signed the check in its behalf.
Prior to the amendments to our rules on criminal procedure, it though clearly was permissible to pursue the
criminal liability against the signatory, while going after the corporation itself for the civil liability.

However, with the insistence under the amended rules that the civil and criminal liability attaching to the
bounced check be pursued jointly, the previous option to directly pursue the civil liability against the person
who incurred the civil obligation–the corporation itself–is no longer that clear. In theory, the implied
institution of the civil case into the criminal case for B.P. Blg. 22 should not affect the civil liability of the
corporation for the same check, since such implied institution concerns the civil liability of the signatory,
and not of the corporation.

Let us pursue this point further. B.P. Blg. 22 imposes a distinct civil liability on the signatory of the check
which is distinct from the civil liability of the corporation for the amount represented from the check. The
civil liability attaching to the signatory arises from the wrongful act of signing the check despite the
insufficiency of funds in the account, while the civil liability attaching to the corporation is itself the very
obligation covered by the check or the consideration for its execution. Yet these civil liabilities are mistaken
to be indistinct. The confusion is traceable to the singularity of the amount of each.

If we conclude, as we should, that under the current Rules of Criminal Procedure, the civil action that is
impliedly instituted in the B.P. Blg. 22 action is only the civil liability of the signatory, and not that of the
corporation itself, the distinctness of the cause of action against the signatory and that against the
corporation is rendered beyond dispute. It follows that the actions involving these liabilities should be
adjudged according to their respective standards and merits. In the B.P. Blg. 22 case, what the trial court
should determine whether or not the signatory had signed the check with knowledge of the insufficiency of
funds or credit in the bank account, while in the civil case the trial court should ascertain whether or not the
obligation itself

is valid and demandable. The litigation of both questions could, in theory, proceed independently and
simultaneously without being ultimately conclusive on one or the other.

It might be argued that under the current rules, if the signatory were made liable for the amount of the
check by reason of the B.P. Blg. 22 case, such signatory would have the option of recovering the same
amount from the corporation. Yet that prospect does not ultimately satisfy the ends of justice. If the
signatory does not have sufficient assets to answer for the amount of the check–a distinct possibility
considering the occasional large-scale transactions engaged in by corporations – the corporation would not
be subsidiarily liable to the complainant, even if it in truth the controversy, of which the criminal case is just
a part, is traceable to the original obligation of the corporation. While the Revised Penal Code imposes
subsidiary civil liability to corporations for criminal acts engaged in by their employees in the discharge of
their duties, said subsidiary liability applies only to felonies, and not to crimes penalized by special laws
such as B.P. Blg. 22. And nothing in B.P. Blg. 22 imposes such subsidiary liability to the corporation in
whose name the check is actually issued. Clearly then, should the check signatory be unable to pay the
obligation incurred by the corporation, the complainant would be bereft of remedy unless the right of action
to collect on the liability of the corporation is recognized and given flesh.

There are two prevailing concerns should civil recovery against the corporation be pursued even as the
B.P. Blg. 22 case against the signatory remains extant. First, the possibility that the plaintiff might be
awarded the amount of the check in both the B.P. Blg. 22 case and in the civil action against the
corporation. For obvious reasons, that should not be permitted. Considering that petitioner herein has no
chance to recover the amount of the check through the B.P. Blg. 22 case, we need not contend with that
possibility through this case. Nonetheless, as a matter of prudence, it is best we refer the matter to the
Committee on Rules for the formulation of proper guidelines to prevent that possibility.

The other concern is over the payment of filing fees in both the B.P. Blg. 22 case and the civil action
against the corporation. Generally, we see no evil or cause for distress if the plaintiff were made to pay
filing fees based on the amount of the check in both the B.P. Blg. 22 case and the civil action. After all, the
plaintiff therein made the deliberate option to file two separate cases, even if the recovery of the amounts of
the check against the corporation could evidently be pursued through the civil action alone.

Nonetheless, in petitioner’s particular case, considering the previous legal confusion on whether he is
authorized to file the civil case against ASB, he should, as a matter of equity, be exempted from paying the
filing fees based on the amount of the checks should he pursue the civil action against ASB. In a similar
vein and for a similar reason, we likewise find that petitioner should not be barred by prescription should he
file the civil action as the period should not run from the date the checks were issued but from the date this
decision attains finality. The courts should not be bound strictly by the statute of limitations or the doctrine
of laches when to do so, manifest wrong or injustice would result.

WHEREFORE, the petition is DENIED, without prejudice to the right of petitioner Jaime U. Gosiaco to
pursue an independent civil action against ASB Holdings Inc. for the amount of the subject checks, in
accordance with the terms of this decision. No pronouncements as to costs.

Let a copy of this Decision be REFERRED to the Committee on Revision of the Rules for the formulation of
the formal rules of procedure to govern the civil action for the recovery of the amount covered by the check
against the juridical person which issued it. SO ORDERED.

16. G.R. No. 126297 : February 02, 2010 PROFESSIONAL SERVICES, INC., PETITIONER, VS. THE COURT OF
APPEALS AND NATIVIDAD AND ENRIQUE AGANA, RESPONDENTS.
G.R. NO. 126467 NATIVIDAD [SUBSTITUTED BY HER CHILDREN MARCELINO AGANA III, ENRIQUE AGANA, JR.,
EMMA AGANA-ANDAYA, JESUS AGANA AND RAYMUND AGANA] AND ENRIQUE AGANA, PETITIONERS, VS.
THE COURT OF APPEALS AND JUAN FUENTES, RESPONDENTS.
G.R. NO. 127590 MIGUEL AMPIL, PETITIONER, VS. NATIVIDAD AND ENRIQUE AGANA, RESPONDENTS.

With prior leave of court, petitioner Professional Services, Inc. (PSI) filed a second motion for reconsideration
urging referral thereof to the Court en banc and seeking modification of the decision dated January 31, 2007
and resolution dated February 11, 2008 which affirmed its vicarious and direct liability for damages to
respondents Enrique Agana and the heirs of Natividad Agana.

Manila Medical Services, Inc. (MMSI), Asian Hospital, Inc. (AHI), and Private Hospital Association of the
Philippines (PHAP) all sought to intervene in these cases invoking the common ground that, unless modified,
the assailed decision and resolution will jeopardize the financial viability of private hospitals and jack up the
cost of health care.

The Special First Division of the Court granted the motions for intervention of MMSI, AHI and PHAP (hereafter
intervenors), and referred en consulta to the Court en banc the motion for prior leave of court and the second
motion for reconsideration of PSI.
Due to paramount public interest, the Court en banc accepted the referral and heard the parties on oral
arguments on one particular issue: whether a hospital may be held liable for the negligence of physicians-
consultants allowed to practice in its premises.

To recall the salient facts, PSI, together with Dr. Miguel Ampil and Dr. Juan Fuentes (Dr. Fuentes), was
impleaded by Enrique Agana and Natividad Agana (later substituted by her heirs), in a complaint for damages
filed in the RTC of Quezon City, Branch 96, for the injuries suffered by Natividad when Dr. Ampil and Dr.
Fuentes neglected to remove from her body two gauzes which were used in the surgery they performed on her
on April 11, 1984 at the Medical City General Hospital. PSI was impleaded as owner, operator and manager of
the hospital.

In a decision dated March 17, 1993, the RTC held PSI solidarily liable with Dr. Ampil and Dr. Fuentes for
damages. On appeal, the Court of Appeals (CA), absolved Dr. Fuentes but affirmed the liability of Dr. Ampil and
PSI, subject to the right of PSI to claim reimbursement from Dr. Ampil.

On petition for review, this Court, in its January 31, 2007 decision, affirmed the CA decision. PSI filed a motion
for reconsideration but the Court denied it in a resolution dated February 11, 2008.

The Court premised the direct liability of PSI to the Aganas on the following facts and law:

First, there existed between PSI and Dr. Ampil an employer-employee relationship as contemplated in the
December 29, 1999 decision in Ramos v. Court of Appeals that "for purposes of allocating responsibility in
medical negligence cases, an employer-employee relationship exists between hospitals and their consultants.
Although the Court in Ramos later issued a Resolution dated April 11, 2002 reversing its earlier finding on the
existence of an employment relationship between hospital and doctor, a similar reversal was not warranted in
the present case because the defense raised by PSI consisted of a mere general denial of control or
responsibility over the actions of Dr. Ampil.

Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created the public impression that he
was its agent. Enrique testified that it was on account of Dr. Ampil's accreditation with PSI that he conferred
with said doctor about his wife's (Natividad's) condition. After his meeting with Dr. Ampil, Enrique asked
Natividad to personally consult Dr. Ampil. In effect, when Enrigue and Natividad engaged the services of Dr.
Ampil, at the back of their minds was that the latter was a staff member of a prestigious hospital. Thus, under
the doctrine of apparent authority applied in Nogales, et al. v. Capitol Medical Center, et al., PSI was liable for
the negligence of Dr. Ampil.

Finally, as owner and operator of Medical City General Hospital, PSI was bound by its duty to provide
comprehensive medical services to Natividad Agana, to exercise reasonable care to protect her from harm, to
oversee or supervise all persons who practiced medicine within its walls, and to take active steps in fixing any
form of negligence committed within its premises. PSI committed a serious breach of its corporate duty when it
failed to conduct an immediate investigation into the reported missing gauzes.

PSI is now asking this Court to reconsider the foregoing rulings for these reasons:
I
The declaration in the 31 January 2007 Decision vis-a-vis the 11 February 2009 Resolution that the ruling in
Ramos vs. Court of Appeals (G.R. No. 134354, December 29, 1999) that "an employer-employee relations exists
between hospital and their consultants" stays should be set aside for being inconsistent with or contrary to the
import of the resolution granting the hospital's motion for reconsideration in Ramos vs. Court of Appeals (G.R.
No. 134354, April 11, 2002), which is applicable to PSI since the Aganas failed to prove an employer-employee
relationship between PSI and Dr. Ampil and PSI proved that it has no control over Dr. Ampil. In fact, the trial
court has found that there is no employer-employee relationship in this case and that the doctor's are
independent contractors.
II
Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not primarily and specifically look to the
Medical City Hospital (PSI) for medical care and support; otherwise stated, respondents Aganas did not select
Medical City Hospital (PSI) to provide medical care because of any apparent authority of Dr. Miguel Ampil as its
agent since the latter was chosen primarily and specifically based on his qualifications and being friend and
neighbor.
III
PSI cannot be liable under doctrine of corporate negligence since the proximate cause of Mrs. Agana's injury
was the negligence of Dr. Ampil, which is an element of the principle of corporate negligence.
In their respective memoranda, intervenors raise parallel arguments that the Court's ruling on the existence of
an employer-employee relationship between private hospitals and consultants will force a drastic and complex
alteration in the long-established and currently prevailing relationships among patient, physician and hospital,
with burdensome operational and financial consequences and adverse effects on all three parties.

The Aganas comment that the arguments of PSI need no longer be entertained for they have all been traversed
in the assailed decision and resolution.

After gathering its thoughts on the issues, this Court holds that PSI is liable to the Aganas, not under the
principle of respondeat superior for lack of evidence of an employment relationship with Dr. Ampil but under
the principle of ostensible agency for the negligence of Dr. Ampil and, pro hac vice, under the principle of
corporate negligence for its failure to perform its duties as a hospital.

While in theory a hospital as a juridical entity cannot practice medicine, in reality it utilizes doctors, surgeons
and medical practitioners in the conduct of its business of facilitating medical and surgical treatment. Within
that reality, three legal relationships crisscross: (1) between the hospital and the doctor practicing within its
premises; (2) between the hospital and the patient being treated or examined within its premises and (3)
between the patient and the doctor. The exact nature of each relationship determines the basis and extent of
the liability of the hospital for the negligence of the doctor.

Where an employment relationship exists, the hospital may be held vicariously liable under Article 2176 in
relation to Article 2180 of the Civil Code or the principle of respondeat superior. Even when no employment
relationship exists but it is shown that the hospital holds out to the patient that the doctor is its agent, the
hospital may still be vicariously liable under Article 2176 in relation to Article 1431 and Article 1869 of the Civil
Code or the principle of apparent authority. Moreover, regardless of its relationship with the doctor, the
hospital may be held directly liable to the patient for its own negligence or failure to follow established
standard of conduct to which it should conform as a corporation.

This Court still employs the "control test" to determine the existence of an employer-employee relationship
between hospital and doctor. In Calamba Medical Center, Inc. v. National Labor Relations Commission, et al. it
held:
Under the "control test", an employment relationship exists between a physician and a hospital if the hospital
controls both the means and the details of the process by which the physician is to accomplish his task.

As priorly stated, private respondents maintained specific work-schedules, as determined by petitioner through
its medical director, which consisted of 24-hour shifts totaling forty-eight hours each week and which were
strictly to be observed under pain of administrative sanctions.

That petitioner exercised control over respondents gains light from the undisputed fact that in the
emergency room, the operating room, or any department or ward for that matter, respondents' work is
monitored through its nursing supervisors, charge nurses and orderlies. Without the approval or consent of
petitioner or its medical director, no operations can be undertaken in those areas. For control test to apply,
it is not essential for the employer to actually supervise the performance of duties of the employee, it being
enough that it has the right to wield the power.
Even in its December 29, 1999 decision and April 11, 2002 resolution in Ramos, the Court found the control test
decisive.

In the present case, it appears to have escaped the Court's attention that both the RTC and the CA found no
employment relationship between PSI and Dr. Ampil, and that the Aganas did not question such finding. In its
March 17, 1993 decision, the RTC found "that defendant doctors were not employees of PSI in its hospital, they
being merely consultants without any employer-employee relationship and in the capacity of independent
contractors. The Aganas never questioned such finding.

PSI, Dr. Ampil and Dr. Fuentes appealed from the RTC decision but only on the issues of negligence, agency and
corporate liability. In its September 6, 1996 decision, the CA mistakenly referred to PSI and Dr. Ampil as
employer-employee, but it was clear in its discussion on the matter that it viewed their relationship as one of
mere apparent agency.

The Aganas appealed from the CA decision, but only to question the exoneration of Dr. Fuentes. PSI also
appealed from the CA decision, and it was then that the issue of employment, though long settled, was
unwittingly resurrected.

In fine, as there was no dispute over the RTC finding that PSI and Dr. Ampil had no employer-employee
relationship, such finding became final and conclusive even to this Court. There was no reason for PSI to have
raised it as an issue in its petition. Thus, whatever discussion on the matter that may have ensued was purely
academic.

Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this particular instance, the
concurrent finding of the RTC and the CA that PSI was not the employer of Dr. Ampil is correct. Control as a
determinative factor in testing the employer-employee relationship between doctor and hospital under which
the hospital could be held vicariously liable to a patient in medical negligence cases is a requisite fact to be
established by preponderance of evidence. Here, there was insufficient evidence that PSI exercised the power
of control or wielded such power over the means and the details of the specific process by which Dr. Ampil
applied his skills in the treatment of Natividad. Consequently, PSI cannot be held vicariously liable for the
negligence of Dr. Ampil under the principle of respondeat superior.

There is, however, ample evidence that the hospital (PSI) held out to the patient (Natividad) that the doctor
(Dr. Ampil) was its agent. Present are the two factors that determine apparent authority: first, the hospital's
implied manifestation to the patient which led the latter to conclude that the doctor was the hospital's agent;
and second, the patient's reliance upon the conduct of the hospital and the doctor, consistent with ordinary
care and prudence.

Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the condition of his wife; that after the
meeting and as advised by Dr. Ampil, he "asked [his] wife to go to Medical City to be examined by [Dr. Ampil]";
and that the next day, April 3, he told his daughter to take her mother to Dr. Ampil. This timeline indicates that
it was Enrique who actually made the decision on whom Natividad should consult and where, and that the
latter merely acceded to it. It explains the testimony of Natividad that she consulted Dr. Ampil at the instigation
of her daughter.

Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified:

Atty. Agcaoili

On that particular occasion, April 2, 1984, what was your reason for choosing Dr. Ampil to contact with in
connection with your wife's illness?

A. First, before that, I have known him to be a specialist on that part of the body as a surgeon, second, I have
known him to be a staff member of the Medical City which is a prominent and known hospital. And third,
because he is a neighbor, I expect more than the usual medical service to be given to us, than his ordinary
patients.

Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was significantly influenced by the
impression that Dr. Ampil was a staff member of Medical City General Hospital, and that said hospital was well
known and prominent. Enrique looked upon Dr. Ampil not as independent of but as integrally related to
Medical City.

PSI's acts tended to confirm and reinforce, rather than negate, Enrique's view. It is of record that PSI required a
"consent for hospital care to be signed preparatory to the surgery of Natividad. The form reads:

Permission is hereby given to the medical, nursing and laboratory staff of the Medical City General Hospital to
perform such diagnostic procedures and to administer such medications and treatments as may be deemed
necessary or advisable by the physicians of this hospital for and during the confinement of.

By such statement, PSI virtually reinforced the public impression that Dr. Ampil was a physician of its hospital,
rather than one independently practicing in it; that the medications and treatments he prescribed were
necessary and desirable; and that the hospital staff was prepared to carry them out.

PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was not the exclusive basis of the
Aganas' decision to have Natividad treated in Medical City General Hospital, meaning that, had Dr. Ampil been
affiliated with another hospital, he would still have been chosen by the Aganas as Natividad's surgeon.
The Court cannot speculate on what could have been behind the Aganas' decision but would rather adhere
strictly to the fact that, under the circumstances at that time, Enrique decided to consult Dr. Ampil for he
believed him to be a staff member of a prominent and known hospital. After his meeting with Dr. Ampil,
Enrique advised his wife Natividad to go to the Medical City General Hospital to be examined by said doctor,
and the hospital acted in a way that fortified Enrique's belief.

This Court must therefore maintain the ruling that PSI is vicariously liable for the negligence of Dr. Ampil as its
ostensible agent.

Moving on to the next issue, the Court notes that PSI made the following admission in its Motion for
Reconsideration:

51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is not liable for Dr. Ampil's acts during the
operation. Considering further that Dr. Ampil was personally engaged as a doctor by Mrs. Agana, it is
incumbent upon Dr. Ampil, as "Captain of the Ship", and as the Agana's doctor to advise her on what to do with
her situation vis-a-vis the two missing gauzes. In addition to noting the missing gauzes, regular check-ups were
made and no signs of complications were exhibited during her stay at the hospital, which could have alerted
petitioner PSI's hospital to render and provide post-operation services to and tread on Dr. Ampil's role as the
doctor of Mrs. Agana. The absence of negligence of PSI from the patient's admission up to her discharge is
borne by the finding of facts in this case. Likewise evident therefrom is the absence of any complaint from Mrs.
Agana after her discharge from the hospital which had she brought to the hospital's attention, could have
alerted petitioner PSI to act accordingly and bring the matter to Dr. Ampil's attention. But this was not the case.
Ms. Agana complained ONLY to Drs. Ampil and Fuentes, not the hospital. How then could PSI possibly do
something to fix the negligence committed by Dr. Ampil when it was not informed about it at all

PSI reiterated its admission when it stated that had Natividad Agana "informed the hospital of her discomfort
and pain, the hospital would have been obliged to act on it.

The significance of the foregoing statements is critical.

First, they constitute judicial admission by PSI that while it had no power to control the means or method by
which Dr. Ampil conducted the surgery on Natividad Agana, it had the power to review or cause the review of
what may have irregularly transpired within its walls strictly for the purpose of determining whether some
form of negligence may have attended any procedure done inside its premises, with the ultimate end of
protecting its patients.

Second, it is a judicial admission that, by virtue of the nature of its business as well as its prominence in the
hospital industry, it assumed a duty to "tread on" the "captain of the ship" role of any doctor rendering services
within its premises for the purpose of ensuring the safety of the patients availing themselves of its services and
facilities.

Third, by such admission, PSI defined the standards of its corporate conduct under the circumstances of this
case, specifically: (a) that it had a corporate duty to Natividad even after her operation to ensure her safety as a
patient; (b) that its corporate duty was not limited to having its nursing staff note or record the two missing
gauzes and (c) that its corporate duty extended to determining Dr. Ampil's role in it, bringing the matter to his
attention, and correcting his negligence.

And finally, by such admission, PSI barred itself from arguing in its second motion for reconsideration that the
concept of corporate responsibility was not yet in existence at the time Natividad underwent treatment; and
that if it had any corporate responsibility, the same was limited to reporting the missing gauzes and did not
include "taking an active step in fixing the negligence committed. An admission made in the pleading cannot
be controverted by the party making such admission and is conclusive as to him, and all proofs submitted by
him contrary thereto or inconsistent therewith should be ignored, whether or not objection is interposed by a
party.

Given the standard of conduct that PSI defined for itself, the next relevant inquiry is whether the hospital
measured up to it.

PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil assumed the personal
responsibility of informing Natividad about the two missing gauzes. Dr. Ricardo Jocson, who was part of the
group of doctors that attended to Natividad, testified that toward the end of the surgery, their group talked
about the missing gauzes but Dr. Ampil assured them that he would personally notify the patient about it.
Furthermore, PSI claimed that there was no reason for it to act on the report on the two missing gauzes
because Natividad Agana showed no signs of complications. She did not even inform the hospital about her
discomfort.

The excuses proffered by PSI are totally unacceptable.

To begin with, PSI could not simply wave off the problem and nonchalantly delegate to Dr. Ampil the duty to
review what transpired during the operation. The purpose of such review would have been to pinpoint when,
how and by whom two surgical gauzes were mislaid so that necessary remedial measures could be taken to
avert any jeopardy to Natividad's recovery. Certainly, PSI could not have expected that purpose to be achieved
by merely hoping that the person likely to have mislaid the gauzes might be able to retrace his own steps. By its
own standard of corporate conduct, PSI's duty to initiate the review was non-delegable.

While Dr. Ampil may have had the primary responsibility of notifying Natividad about the missing gauzes, PSI
imposed upon itself the separate and independent responsibility of initiating the inquiry into the missing
gauzes. The purpose of the first would have been to apprise Natividad of what transpired during her surgery,
while the purpose of the second would have been to pinpoint any lapse in procedure that led to the gauze
count discrepancy, so as to prevent a recurrence thereof and to determine corrective measures that would
ensure the safety of Natividad. That Dr. Ampil negligently failed to notify Natividad did not release PSI from its
self-imposed separate responsibility.

Corollary to its non-delegable undertaking to review potential incidents of negligence committed within its
premises, PSI had the duty to take notice of medical records prepared by its own staff and submitted to its
custody, especially when these bear earmarks of a surgery gone awry. Thus, the record taken during the
operation of Natividad which reported a gauze count discrepancy should have given PSI sufficient reason to
initiate a review. It should not have waited for Natividad to complain.

As it happened, PSI took no heed of the record of operation and consequently did not initiate a review of what
transpired during Natividad's operation. Rather, it shirked its responsibility and passed it on to others - to Dr.
Ampil whom it expected to inform Natividad, and to Natividad herself to complain before it took any
meaningful step. By its inaction, therefore, PSI failed its own standard of hospital care. It committed corporate
negligence.

It should be borne in mind that the corporate negligence ascribed to PSI is different from the medical
negligence attributed to Dr. Ampil. The duties of the hospital are distinct from those of the doctor-consultant
practicing within its premises in relation to the patient; hence, the failure of PSI to fulfill its duties as a hospital
corporation gave rise to a direct liability to the Aganas distinct from that of Dr. Ampil.

All this notwithstanding, we make it clear that PSI's hospital liability based on ostensible agency and corporate
negligence applies only to this case, pro hac vice. It is not intended to set a precedent and should not serve as a
basis to hold hospitals liable for every form of negligence of their doctors-consultants under any and all
circumstances. The ruling is unique to this case, for the liability of PSI arose from an implied agency with Dr.
Ampil and an admitted corporate duty to Natividad.

Other circumstances peculiar to this case warrant this ruling, not the least of which being that the agony
wrought upon the Aganas has gone on for 26 long years, with Natividad coming to the end of her days racked
in pain and agony. Such wretchedness could have been avoided had PSI simply done what was logical: heed the
report of a guaze count discrepancy, initiate a review of what went wrong and take corrective measures to
ensure the safety of Nativad. Rather, for 26 years, PSI hemmed and hawed at every turn, disowning any such
responsibility to its patient. Meanwhile, the options left to the Aganas have all but dwindled, for the status of
Dr. Ampil can no longer be ascertained. [66]

Therefore, taking all the equities of this case into consideration, this Court believes P15 million would be a fair
and reasonable liability of PSI, subject to 12% p.a. interest from the finality of this resolution to full satisfaction.

WHEREFORE, the second motion for reconsideration is DENIED and the motions for intervention are NOTED.

Professional Services, Inc. is ORDERED pro hac vice to pay Natividad (substituted by her children Marcelino
Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana) and Enrique Agana the
total amount of P15 million, subject to 12% p.a. interest from the finality of this resolution to full satisfaction.
No further pleadings by any party shall be entertained in this case. Let the long-delayed entry of judgment be
made in this case upon receipt by all concerned parties of this resolution. SO ORDERED.

517. G.R. No. 15574           September 17, 1919 SMITH, BELL & COMPANY (LTD.), petitioner, vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.

A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of
Customs of the port of Cebu, Philippine Islands, to compel him to issue a certificate of Philippine registry to
the petitioner for its motor vessel Bato. The Attorney-General, acting as counsel for respondent, demurs to
the petition on the general ground that it does not state facts sufficient to constitute a cause of action. While
the facts are thus admitted, and while, moreover, the pertinent provisions of law are clear and
understandable, and interpretative American jurisprudence is found in abundance, yet the issue submitted
is not lightly to be resolved. The question, flatly presented, is, whether Act. No. 2761 of the Philippine
Legislature is valid — or, more directly stated, whether the Government of the Philippine Islands, through
its Legislature, can deny the registry of vessels in its coastwise trade to corporations having alien
stockholders.
FACTS.

Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A
majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for
it in the Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought to Cebu in the
present year for the purpose of transporting plaintiff's merchandise between ports in the Islands.
Application was made at Cebu, the home port of the vessel, to the Collector of Customs for a certificate of
Philippine registry. The Collector refused to issue the certificate, giving as his reason that all the
stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the Philippine
Islands. The instant action is the result.

LAW.

The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but re - enacting a
portion of section 3 of this Law, and still in force, provides in its section 1:

That until Congress shall have authorized the registry as vessels of the United States of
vessels owned in the Philippine Islands, the Government of the Philippine Islands is hereby
authorized to adopt, from time to time, and enforce regulations governing the transportation
of merchandise and passengers between ports or places in the Philippine Archipelago.

The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, provides in
section 3, (first paragraph, first sentence), 6, 7, 8, 10, and 31, as follows.

SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of life,
liberty, or property without due process of law, or deny to any person therein the equal
protection of the laws. . . .

SEC. 6. That the laws now in force in the Philippines shall continue in force and effect,
except as altered, amended, or modified herein, until altered, amended, or repealed by the
legislative authority herein provided or by Act of Congress of the United States.

SEC. 7. That the legislative authority herein provided shall have power, when not
inconsistent with this Act, by due enactment to amend, alter modify, or repeal any law, civil
or criminal, continued in force by this Act as it may from time to time see fit

This power shall specifically extend with the limitation herein provided as to the tariff to all
laws relating to revenue provided as to the tariff to all laws relating to revenue and taxation
in effect in the Philippines.

SEC. 8. That general legislative power, except as otherwise herein provided, is hereby
granted to the Philippine Legislature, authorized by this Act.

SEC. 10. That while this Act provides that the Philippine government shall have the
authority to enact a tariff law the trade relations between the islands and the United States
shall continue to be governed exclusively by laws of the Congress of the United States:
Provided, That tariff acts or acts amendatory to the tariff of the Philippine Islands shall not
 become law until they shall receive the approval of the President of the United States, nor
shall any act of the Philippine Legislature affecting immigration or the currency or coinage
laws of the Philippines become a law until it has been approved by the President of the
United States: Provided further, That the President shall approve or disapprove any act
mentioned in the foregoing proviso within six months from and after its enactment and
submission for his approval, and if not disapproved within such time it shall become a law
the same as if it had been specifically approved.

SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any
of the provisions of this Act are hereby continued in force and effect.

On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law
amended section 1172 of the Administrative Code to read as follows:

SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domestic

ownership, and of more than fifteen tons gross, a certificate of Philippine register shall be
issued for it. If the vessel is of domestic ownership and of fifteen tons gross or less, the
taking of the certificate of Philippine register shall be optional with the owner.

"Domestic ownership," as used in this section, means ownership vested in some one or
more of the following classes of persons: (a) Citizens or native inhabitants of the Philippine
Islands; (b) citizens of the United States residing in the Philippine Islands; (c) any
corporation or company composed wholly of citizens of the Philippine Islands or of the
United States or of both, created under the laws of the United States, or of any State
thereof, or of thereof, or the managing agent or master of the vessel resides in the
Philippine Islands

Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and
eighteen, had a certificate of Philippine register under existing law, shall likewise be
deemed a vessel of domestic ownership so long as there shall not be any change in the
ownership thereof nor any transfer of stock of the companies or corporations owning such
vessel to person not included under the last preceding paragraph.

Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read as
follows:

SEC. 1176. Investigation into character of vessel. — No application for a certificate of

Philippine register shall be approved until the collector of customs is satisfied from an
inspection of the vessel that it is engaged or destined to be engaged in legitimate trade and
that it is of domestic ownership as such ownership is defined in section eleven hundred and
seventy-two of this Code.

The collector of customs may at any time inspect a vessel or examine its owner, master,
crew, or passengers in order to ascertain whether the vessel is engaged in legitimate trade
and is entitled to have or retain the certificate of Philippine register.

SEC. 1202. Limiting number of foreign officers and engineers on board vessels. — No
Philippine vessel operating in the coastwise trade or on the high seas shall be permitted to
have on board more than one master or one mate and one engineer who are not citizens of
the United States or of the Philippine Islands, even if they hold licenses under section one
thousand one hundred and ninety-nine hereof. No other person who is not a citizen of the
United States or of the Philippine Islands shall be an officer or a member of the crew of
such vessel. Any such vessel which fails to comply with the terms of this section shall be
required to pay an additional tonnage tax of fifty centavos per net ton per month during the
continuance of said failure.

ISSUES.

Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act No
2761 of the Philippine Legislature is valid in whole or in part — whether the Government of the Philippine
Islands, through its Legislature, can deny the registry of vessel in its coastwise trade to corporations having
alien stockholders .

OPINION.
1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of the
Philippine Legislature to enact Act No. 2761. The Act of Congress of April 29, 1908, with its specific
delegation of authority to the Government of the Philippine Islands to regulate the transportation of
merchandise and passengers between ports or places therein, the liberal construction given to the
provisions of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts, and the grant by the Act
of Congress of August 29, 1916, of general legislative power to the Philippine Legislature, are certainly
superabundant authority for such a law. While the Act of the local legislature may in a way be inconsistent
with the Act of Congress regulating the coasting trade of the Continental United States, yet the general rule
that only such laws of the United States have force in the Philippines as are expressly extended thereto,
and the abnegation of power by Congress in favor of the Philippine Islands would leave no starting point for
convincing argument. As a matter of fact, counsel for petitioner does not assail legislative action from this
direction (See U. S. vs. Bull)

2. It is from the negative, prohibitory standpoint that counsel argues against the constitutionality of Act No.
2761. The first paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in the first
paragraph of the Philippine Bill of Rights as set forth in the Jones Law, provides "That no law shall be
enacted in said Islands which shall deprive any person of life, liberty, or property without due process of
law, or deny to any person therein the equal protection of the laws." Counsel says that Act No. 2761 denies
to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits the corporation
from owning vessels, and because classification of corporations based on the citizenship of one or more of
their stockholders is capricious, and that Act No. 2761 deprives the corporation of its properly without due
process of law because by the passage of the law company was automatically deprived of every beneficial
attribute of ownership in the Bato and left with the naked title to a boat it could not use .

The guaranties extended by the Congress of the United States to the Philippine Islands have been used in
the same sense as like provisions found in the United States Constitution. While the "due process of law
and equal protection of the laws" clause of the Philippine Bill of Rights is couched in slightly different words
than the corresponding clause of the Fourteenth Amendment to the United States Constitution, the first
should be interpreted and given the same force and effect as the latter. (Kepner vs. U.S) The meaning of
the Fourteenth Amendment has been announced in classic decisions of the United States Supreme Court.
Even at the expense of restating what is so well known, these basic principles must again be set down in
order to serve as the basis of this decision.

The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights,
are universal in their application to all person within the territorial jurisdiction, without regard to any
differences of race, color, or nationality. The word "person" includes aliens. (Yick Wo vs. Hopkins) Private
corporations, likewise, are "persons" within the scope of the guaranties in so far as their property is
concerned. (Santa Clara County vs. Southern) Classification with the end in view of providing diversity of
treatment may be made among corporations, but must be based upon some reasonable ground and not be
a mere arbitrary selection (Gulf, Colorado & Santa Fe Railway Co. vs. Ellis) Examples of laws held
unconstitutional because of unlawful discrimination against aliens could be cited. Generally, these
decisions relate to statutes which had attempted arbitrarily to forbid aliens to engage in ordinary kinds of
business to earn their living. (State vs. Montgomery) all relating to the employment of aliens by private
corporations.)

A literal application of general principles to the facts before us would, of course, cause the inevitable
deduction that Act No. 2761 is unconstitutional by reason of its denial to a corporation, some of whole
members are foreigners, of the equal protection of the laws. Like all beneficient propositions, deeper
research discloses provisos. Examples of a denial of rights to aliens notwithstanding the provisions of the
Fourteenth Amendment could be cited. (Tragesser vs. Gray) prohibiting the killing of any wild bird or animal
by any unnaturalized foreign-born resident; discriminating in favor of citizens with reference to the taking for
private use of the common property in fish and oysters found in the public waters of the State; Heim vs.
McCall [1915], 239 U. S.,.175, and Crane vs. New York [1915], 239 U. S., 195, limiting employment on
public works by, or for, the State or a municipality to citizens of the United States.)

One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither the
Fourteenth Amendment to the United States Constitution, broad and comprehensive as it is, nor any other
amendment, "was designed to interfere with the power of the State, sometimes termed its `police power,' to
prescribe regulations to promote the health, peace, morals, education, and good order of the people, and
legislate so as to increase the industries of the State, develop its resources and add to its wealth and
prosperity. From the very necessities of society, legislation of a special character, having these objects in
view, must often be had in certain districts." (Barbier vs. Connolly) This is the same police power which the
United States Supreme Court say "extends to so dealing with the conditions which exist in the state as to
bring out of them the greatest welfare in of its people." (Bacon vs. Walker) For quite similar reasons, none
of the provision of the Philippine Organic Law could could have had the effect of denying to the
Government of the Philippine Islands, acting through its Legislature, the right to exercise that most
essential, insistent, and illimitable of powers, the sovereign police power, in the promotion of the general
welfare and the public interest. (U. S. vs. Toribio) Another notable exception permits of the regulation or
distribution of the public domain or the common property or resources of the people of the State, so that
use may be limited to its citizens. (McCready vs. Virginia, Patsone vs. Commonwealth of Pennsylvania)
Still another exception permits of the limitation of employment in the construction of public works by, or for,
the State or a municipality to citizens of the United States or of the State. (Atkin vs. Kansas [1903],191 U.
S., 207; Heim vs. McCall [1915], 239 U.S., 175; Crane vs. New York [1915], 239 U. S., 195.) Even as to
classification, it is admitted that a State may classify with reference to the evil to be prevented; the question
is a practical one, dependent upon experience. (Patsone vs. Commonwealth of Pennsylvania [1914], 232
U. S., 138.)

To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of
Philippine registry only on condition that they be composed wholly of citizens of the Philippine Islands or of
the United States or both, as not infringing Philippine Organic Law, it must be done under some one of the
exceptions here mentioned This must be done, moreover, having particularly in mind what is so often of
controlling effect in this jurisdiction — our local experience and our peculiar local conditions.

To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found more than
three thousand islands. Literally, and absolutely, steamship lines are, for an Insular territory thus situated,
the arteries of commerce. If one be severed, the life-blood of the nation is lost. If on the other hand these
arteries are protected, then the security of the country and the promotion of the general welfare is
sustained. Time and again, with such conditions confronting it, has the executive branch of the Government
of the Philippine Islands, always later with the sanction of the judicial branch, taken a firm stand with
reference to the presence of undesirable foreigners. The Government has thus assumed to act for the all-
sufficient and primitive reason of the benefit and protection of its own citizens and of the self-preservation
and integrity of its dominion. Boats owned by foreigners, particularly by such solid and reputable firms as
the instant claimant, might indeed traverse the waters of the Philippines for ages without doing any
particular harm. Again, some evil minded foreigner might very easily take advantage of such lavish
hospitality to chart Philippine waters, to obtain valuable information for unfriendly foreign powers, to stir up
insurrection, or to prejudice Filipino or American commerce. Moreover, under the Spanish portion of
Philippine law, the waters within the domestic jurisdiction are deemed part of the national domain, open to
public use. (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.)
Common carriers which in the Philippines as in the United States and other countries are, as Lord Hale
said, "affected with a public interest," can only be permitted to use these public waters as a privilege and
under such conditions as to the representatives of the people may seem wise.

In Patsone vs. Commonwealth of Pennsylvania, a case herein before mentioned, Justice Holmes delivering
the opinion of the United States Supreme Court said:

This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild
bird or animal except in defense of person or property, and `to that end' makes it unlawful
for such foreign-born person to own or be possessed of a shotgun or rifle; with a penalty of
$25 and a forfeiture of the gun or guns. The plaintiff in error was found guilty and was
sentenced to pay the abovementioned fine. The judgment was affirmed on successive
appeals. He brings the case to this court on the ground that the statute is contrary to the
14th Amendment and also is in contravention of the treaty between the United States and
Italy, to which latter country the plaintiff in error belongs .

Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of
property, and discrimination against such aliens as a class. But the former really depends
upon the latter, since it hardly can be disputed that if the lawful object, the protection of wild
life (Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16 Sup. Ct. Rep., 600), warrants
the discrimination, the, means adopted for making it effective also might be adopted. . . .

The discrimination undoubtedly presents a more difficult question. But we start with
reference to the evil to be prevented, and that if the class discriminated against is or
reasonably might be considered to define those from whom the evil mainly is to be feared, it
properly may be picked out. A lack of abstract symmetry does not matter. The question is a
practical one, dependent upon experience. . . .

The question therefore narrows itself to whether this court can say that the legislature of
Pennsylvania was not warranted in assuming as its premise for the law that resident un
naturalized aliens were the peculiar source of the evil that it desired to prevent.
 Obviously the question, so stated, is one of local experience, on which this court ought to
be very slow to declare that the state legislature was wrong in its. If we might trust popular
speech in some states it was right; but it is enough that this court has no such knowledge of
local conditions as to be able to say that it was manifestly wrong. . . .

Judgment affirmed.

We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is
entitled to the protection afforded by the due-process of law and equal protection of the laws clause of the
Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations
such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not
belong to that vicious species of class legislation which must always be condemned, but does fall within
authorized exceptions, notably, within the purview of the police power, and so does not offend against the
constitutional provision.

This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative
history of the United States and the Philippine Islands, and, probably, the legislative history of other
countries, if we were to take the time to search it out, might disclose similar attempts at restriction on the
right to enter the coastwise trade, and might thus furnish valuable aid by which to ascertain and, if possible,
effectuate legislative intention.

3. The power to regulate commerce, expressly delegated to the Congress by the

Constitution, includes the power to nationalize ships built and owned in the United States by
registries and enrolments, and the recording of the muniments of title of American vessels.
The Congress "may encourage or it may entirely prohibit such commerce, and it may
regulate in any way it may see fit between these two extremes.

Acting within the purview of such power, the first Congress of the United States had not been long
convened before it enacted on September 1, 1789, "An Act for Registering and Clearing Vessels,
Regulating the Coasting Trade, and for other purposes." Section 1 of this law provided that for any ship or
vessel to obtain the benefits of American registry, it must belong wholly to a citizen or citizens of the United
States "and no other. That Act was shortly after repealed, but the same idea was carried into the Acts of
Congress of December 31, 1792 and February 18, 1793. Section 4 of the Act of 1792 provided that in order
to obtain the registry of any vessel, an oath shall be taken and subscribed by the owner, or by one of the
owners thereof, before the officer authorized to make such registry, declaring, "that there is no subject or
citizen of any foreign prince or state, directly or indirectly, by way of trust, confidence, or otherwise,
interested in such vessel, or in the profits or issues thereof." Section 32 of the Act of 1793 even went so far
as to say "that if any licensed ship or vessel shall be transferred to any person who is not at the time of
such transfer a citizen of and resident within the United States, ... every such vessel with her tackle,
apparel, and furniture, and the cargo found on board her, shall be forfeited." In case of alienation to a
foreigner, Chief Justice Marshall said that all the privileges of an American bottom were ipso facto forfeited.
(U.S. vs. Willings and Francis) Even as late as 1873, the Attorney-General of the United States was of the
opinion that under the provisions of the Act of December 31, 1792, no vessel in which a foreigner is directly
or indirectly interested can lawfully be registered as a vessel of the United. States.

These laws continued in force without contest, although possibly the Act of March 3, 1825, may have
affected them, until amended by the Act of May 28, 1896 which extended the privileges of registry from
vessels wholly owned by a citizen or citizens of the United States to corporations created under the laws of
any of the states thereof. The law, as amended, made possible the deduction that a vessel belonging to a
domestic corporation was entitled to registry or enrolment even though some stock of the company be
owned by aliens. The right of ownership of stock in a corporation was thereafter distinct from the right to
hold the property by the corporation.

On American occupation of the Philippines, the new government found a substantive law in operation in the
Islands with a civil law history which it wisely continued in force Article fifteen of the Spanish Code of
Commerce permitted any foreigner to engage in Philippine trade if he had legal capacity to do so under the
laws of his nation. When the Philippine Commission came to enact the Customs Administrative Act (No.
355) in 1902, it returned to the old American policy of limiting the protection and flag of the United States to
vessels owned by citizens of the United States or by native inhabitants of the Philippine Islands (Sec. 117.)
Two years later, the same body reverted to the existing Congressional law by permitting certification to be
issued to a citizen of the United States or to a corporation or company created under the laws of the United
States or of any state thereof or of the Philippine Islands (Act No. 1235, sec. 3.) The two administration
codes repeated the same provisions with the necessary amplification of inclusion of citizens or native
inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of 1917, sec. 1172). And
now Act No. 2761 has returned to the restrictive idea of the original Customs Administrative Act which in
turn was merely a reflection of the statutory language of the first American Congress.

Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of Philippine
registry, are thus found not to be as radical as a first reading would make them appear.

Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-
alien shipping act. The ultimate purpose of the Legislature is to encourage Philippine ship-building. This,
without doubt, has, likewise, been the intention of the United States Congress in passing navigation or tariff
laws on different occasions. The object of such a law, the United States Supreme Court once said, was to
encourage American trade, navigation, and ship-building by giving American ship-owners exclusive
privileges. In the concurring opinion of Justice Johnson in Gibbons vs. Ogden) is found the following:

Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts
licensing gaming houses, retailers of spirituous liquors, etc. The act, in this instance, is
distinctly of that character, and forms part of an extensive system, the object of which is to
encourage American shipping, and place them on an equal footing with the shipping of
other nations. Almost every commercial nation reserves to its own subjects a monopoly of
its coasting trade; and a countervailing privilege in favor of American shipping is
contemplated, in the whole legislation of the United States on this subject. It is not to give
the vessel an American character, that the license is granted; that effect has been correctly
attributed to the act of her enrolment. But it is to confer on her American privileges, as
contradistinguished from foreign; and to preserve the. Government from fraud by
foreigners, in surreptitiously intruding themselves into the American commercial marine, as
well as frauds upon the revenue in the trade coastwise, that this whole system is projected.

The United States Congress in assuming its grave responsibility of legislating wisely for a new country did
so imbued with a spirit of Americanism. Domestic navigation and trade, it decreed, could only be carried on
by citizens of the United States. If the representatives of the American people acted in this patriotic manner
to advance the national policy, and if their action was accepted without protest in the courts, who can say
that they did not enact such beneficial laws under the all-pervading police power, with the prime motive of
safeguarding the country and of promoting its prosperity? Quite similarly, the Philippine Legislature made
up entirely of Filipinos, representing the mandate of the Filipino people and the guardian of their rights,
acting under practically autonomous powers, and imbued with a strong sense of Philippinism, has desired
for these Islands safety from foreign interlopers, the use of the common property exclusively by its citizens
and the citizens of the United States, and protection for the common good of the people. Who can say,
therefore, especially can a court, that with all the facts and circumstances affecting the Filipino people
before it, the Philippine Legislature has erred in the enactment of Act No. 2761?

Surely, the members of the judiciary are not expected to live apart from active life, in monastic seclusion
amidst dusty tomes and ancient records, but, as keen spectators of passing events and alive to the dictates
of the general — the national — welfare, can incline the scales of their decisions in favor of that solution
which will most effectively promote the public policy. All the presumption is in favor of the constitutionally of
the law and without good and strong reasons, courts should not attempt to nullify the action of the
Legislature. "In construing a statute enacted by the Philippine Commission (Legislature), we deem it our
duty not to give it a construction which would be repugnant to an Act of Congress, if the language of the
statute is fairly susceptible of another construction not in conflict with the higher law.That is the true
construction which will best carry legislative intention into effect.

With full consciousness of the importance of the question, we nevertheless are clearly of the opinion that
the limitation of domestic ownership for purposes of obtaining a certificate of Philippine registry in the
coastwise trade to citizens of the Philippine Islands, and to citizens of the United States, does not violate
the provisions of paragraph 1 of section 3 of the Act of Congress of August 29, 1916 No treaty right relied
upon Act No. 2761 of the Philippine Legislature is held valid and constitutional .

The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.

18. G.R. No. 75885 May 27, 1987 BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO),
petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) et al., respondents.

Challenged in this special civil action of certiorari and prohibition by a private corporation known as the
Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by
President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the
sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders
by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said
corporation.
1. The Sequestration, Takeover, and Other Orders Complained of

The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued
on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of
the Commission, hereafter simply referred to as PCGG.

On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a
letter dated April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request
for the production of certain documents.

The letter closed with the warning that if the documents were not submitted within five days, the officers
would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2."

On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and
Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment
in part of their contracts with BASECO in the sense that the stipulated charges for use of the BASECO road
network were made payable "upon entry and not anymore subject to monthly billing as was originally
agreed upon.

On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with
Deltamarine Integrated Port Services, Inc., in virtue of which the latter undertook to introduce
improvements costing approximately P210,000.00 on the BASECO wharf at Engineer Island, allegedly then
in poor condition, avowedly to "optimize its utilization and in return maximize the revenue which would flow
into the government coffers," in consideration of Deltamarine's being granted "priority in using the improved
portion of the wharf ahead of anybody" and exemption "from the payment of any charges for the use of
wharf including the area where it may install its bagging equipments" "until the improvement remains in a
condition suitable for port operations. It seems however that this contract was never consummated. Capt.
Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised Delta marine by letter dated
July 30, 1986 that "the new management is not in a position to honor the said contract" and thus "whatever
improvements shall be deemed unauthorized and shall be at (Deltamarine's) own risk.

By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O.
Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the
BASECO Sesiman Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in
representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at
Mariveles, Bataan, an agreement to this effect having been executed by them on September 17, 1986.

By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also
"authorized to clean and beautify the Company's compound," and in this connection, to dispose of or sell
"metal scraps" and other materials, equipment and machineries no longer usable, subject to specified
guidelines and safeguards including audit and verification.

By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the
PCGG of BASECO, "the Philippine Dockyard Corporation and all their affiliated companies. Diaz invoked
the provisions of Section 3 (c) of Executive Order No. 1, empowering the Commission — A management
team was designated to implement the order, headed by Capt. Siacunco.

Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto
Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the PCGG.

2. Petitioner's Plea and Postulates

It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat,
petitioner BASECO would have this Court nullify. More particularly, BASECO prays that this Court-

1) declare unconstitutional and void Executive Orders Numbered 1 and 2;

2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts
done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the
services of the BASECO executives.

a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to judicial action, might be made within the
context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was
promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the
law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom
Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973
Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty and
property without due process of law." (Const., Art. I V, Sec. 1)

b. Re Order to Produce Documents

It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already
complied with, was issued without court authority and infringed its constitutional right against self-
incrimination, and unreasonable search and seizure.

c. Re PCGG's Exercise of Right of Ownership and Management

BASECO further contends that the PCGG had unduly interfered with its right of dominion and management
of its business affairs by —

1) terminating its contract for security services with Fairways & Anchor, without the consent and against the
will of the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease
Contract with National Stevedoring & Lighterage Corporation, these acts being in violation of the non-
impairment clause of the constitution;

2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated
Port Services, Inc., giving the latter free use of BASECO premises;

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at
Sesiman, Mariveles;

4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials;

5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;

6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza;
GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta

7) planning to elect its own Board of Directors;

8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at
Mariveles rolls of cable wires, worth P600,000.00 on May 11, 1986;

9) Allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried
therein.

3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders

Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have
been engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of
the law governing these remedies. It is needful that these misconceptions and doubts be dispelled so that
uninformed and useless debates about them may be avoided, and arguments tainted b sophistry or
intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an
exposition of the law on the matter. In the process many of the objections raised by BASECO will be dealt
with.

4. The Governing Law

a. Proclamation No. 3. That the President-in the exercise of legislative power which she was authorized to
continue to wield (until a legislature is elected and convened under a new Constitution" — "shall give
priority to measures to achieve the mandate of the people," among others to recover ill-gotten properties
amassed by the leaders and supporters of the previous regime and protect the interest of the people
through orders of sequestration or freezing of assets or accounts.
b. Executive Order No. 1. Stresses the "urgent need to recover all ill-gotten wealth," and postulates that
"vast resources of the government have been amassed by former President Ferdinand E. Marcos, his
immediate family, relatives, and close associates both here and abroad. Upon these premises, the
Presidential Commission on Good Government was created, "charged with the task of assisting the
President in regard to (certain specified) matters," among which was precisely-

In relation to the takeover or sequestration that it was authorized to undertake in the fulfilment of its
mission, the PCGG was granted "power and authority" to do the following particular acts, to wit:

1. To sequester or place or cause to be placed under its control or possession.

2. To provisionally take over in the public interest or to prevent the disposal or

dissipation, business enterprises and properties taken over by the government.

3. To enjoin or restrain any actual or threatened commission of acts by any person

or entity that may render moot and academic, or frustrate or otherwise make
ineffectual the efforts of the Commission to carry out its task under this order.

So that it might ascertain the facts germane to its objectives, it was granted power to conduct
investigations; require submission of evidence by subpoenae ad testificandum and duces tecum;
administer oaths; punish for contempt. It was given power also to promulgate such rules and regulations as
may be necessary to carry out the purposes of (its creation).

c. Executive Order No. 2. Gives additional and more specific data and directions respecting "the recovery
of ill-gotten properties amassed by the leaders and supporters of the previous regime

d. Executive Order No. 14. By which the PCGG is empowered, "with the assistance of the Office of the
Solicitor General and other government agencies, to file and prosecute all cases investigated by it as may
be warranted by its findings. All such cases, whether civil or criminal, are to be filed "with the
Sandiganbayan which shall have exclusive and original jurisdiction thereof.

5. Contemplated Situations

The situations envisaged and sought to be governed are self-evident, these being:

1. that "ill-gotten properties (were) amassed by the leaders and supporters of the
previous regime";

a. more particularly, that ill-gotten wealth (was) accumulated

b. otherwise stated, that there are assets and properties resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the
Republic of the Philippines.

c. that "said assets and properties are in the form of bank accounts, deposits, trust.

2. that certain "business enterprises and properties (were) taken over by the
government or by entities or persons.

6. Government's Right and Duty to Recover All Ill-gotten Wealth

There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-
gotten wealth."

Neither can there be any debate about the proposition that assuming the above described factual premises
of the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the
recovery from Marcos, his family and his dominions of the assets and properties involved, is not only a right
but a duty on the part of Government.

7. Provisional Remedies Prescribed by Law

To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration;
(2) freeze orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth."
The remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties
(were) taken over by the government of the Marcos Administration or by entities or persons close to former
President Marcos.

8. Requisites for Validity

What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie
factual foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair
opportunity to contest it and endeavor to cause its negation or nullification.

Both are assured under the executive orders in question and the rules and regulations promulgated by the
PCGG.

9. Constitutional Sanction of Remedies

If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of
sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies
and the authority of the PCGG to issue them have received constitutional approbation and sanction. As
already mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty of the
President to enact "measures to achieve the mandate of the people to (recover ill- gotten properties
amassed by the leaders and supporters of the previous regime and protect the interest of the people
through orders of sequestration or freezing of assets or accounts.

10. PCGG not a "Judge"; General Functions

It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and
was never intended to act as, a judge. Its general function is to conduct investigations in order to collect
evidence establishing instances of "ill-gotten wealth;" issue sequestration, and such orders as may be
warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of
which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file
and prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted
by its findings.

11. Facts Preclude Grant of Relief to Petitioner

Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to
be discussed, the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be
issued.

The facts show that the corporation known as BASECO was owned or controlled by President Marcos
"during his administration, through nominees, by taking undue advantage of his public office and/or using
his powers, authority, or influence, " and that it was by and through the same means, that BASECO had
taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities.

12. Organization and Stock Distribution of BASECO

BASECO describes itself in its petition as "a ship repair and shipbuilding company * * incorporated as a
domestic private corporation (on Aug. 30, 1972) by a consortium of Filipino ship-owners and shipping
executives. Its main office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is
housed, and its main shipyard is located at Mariveles Bataan. Its Articles of Incorporation disclose that its
authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value
of P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of P3,035,000.00
has been paid by the incorporators.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or
NASSCO, a government-owned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known
as the Bataan National Shipyard (BNS), and — except for NASSCO's Engineer Island Shops and certain
equipment of the BNS, consigned for future negotiation — all its structures, buildings, shops, quarters,
houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase
and Sale with Chattel Mortgage" executed on February 13, 1973.
14. Subsequent Reduction of Price; Intervention of Marcos

Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about
eight (8) months later. A document to this effect was executed on October 9, 1973, entitled "Memorandum
Agreement," and was signed for NASSCO by Arturo Pacificador, as Presiding Officer of the Board of
Directors, and David R. Ines, as General Manager.

15. Acquisition of 300 Hectares from Export Processing Zone Authority

On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export
Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale,
P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in instalments.

16. Acquisition of Other Assets of NASSCO; Intervention of Marcos

Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of
President Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in
the first two (2) purchase documents. This was accomplished by a deed entitled "Contract of Purchase and
Sale.

17. Loans Obtained

It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last
available Japanese war damage fund of $19,000,000.00," to pay for "Japanese made heavy equipment
(brand new). On September 3, 1975, it got another loan also from the NDC in the amount of
P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, in the sum
of P12,400,000.00. The claim has been made that not a single centavo has been paid on these loans.

18. Reports to President Marcos

In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was
contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO president. The second was
embodied in a confidential memorandum dated September 16, 1977 of Capt. A.T. Romualdez. They further
disclose the fine hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity.

20. Evidence of Marcos'

Ownership of BASECO

It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by
President Marcos of BASECO has been sufficiently shown.

Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only
exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its
outstanding stock.

Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in
Malacanang shortly after the sudden flight of President Marcos, were certificates corresponding to more
than ninety-five percent (95%) of all the outstanding shares of stock of BASECO, endorsed in blank,
together with deeds of assignment of practically all the outstanding shares of stock of the three (3)
corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof
although not notarized.

While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO
stockholders were still in possession of their respective stock certificates and had "never endorsed them in
blank or to anyone else,

By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to
SUBMIT, as undertaken by him, the certificates of stock issued to the stockholders of BASECO as of April
23, 1986

21. Facts Justify Issuance of Sequestration and Takeover Orders

In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and
directors of BASECO as of April, 1986

From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private
corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos during
his administration, through nominees, by taking advantage of (his) public office and/or using (his) powers,
authority, influence and that NASSCO and other property of the government had been taken over by
BASECO; and the situation justified the sequestration as well as the provisional takeover of the corporation
in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of
the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its
adjudication in favor of the Republic pursuant to Executive Order No. 14.

As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it
sustains the acts of sequestration and takeover by the PCGG as being in accord with the law, and, in view
of what has thus far been set out in this opinion, pronounces to be without merit the theory that said acts,
and the executive orders pursuant to which they were done, are fatally defective in not according to the
parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain
relief therefrom, or that the PCGG had acted as prosecutor and judge at the same time.

22. Executive Orders Not a Bill of Attainder

Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. A bill of
attainder is a legislative act which inflicts punishment without judicial trial. Its essence is the substitution of a legislative for a judicial determination of
guilt.

23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures

BASECO also contends that its right against self incrimination and unreasonable searches and seizures
had been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from
1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon the
authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas
requiring the production of such books, papers, contracts, records, statements of accounts and other
documents as may be material to the investigation conducted by the Commission, " and paragraph (3),
Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding (alleged "ill-
gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees,
agents or trustees, to make full disclosure of the same. The contention lacks merit.

It is elementary that the right against self-incrimination has no application to juridical persons.

The constitutional safeguard against unreasonable searches and seizures finds no application to the case
at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of
course no seizure on the occasion thereof.

24. Scope and Extent of Powers of the PCGG

One other question remains to be disposed of, that respecting the scope and extent of the powers that may
be wielded by the PCGG with regard to the properties or businesses placed under sequestration or
provisionally taken over. Obviously, it is not a question to which an answer can be easily given, much less
one which will suffice for every conceivable situation.

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the
management of the company's affairs should henceforth be guided and governed by the norms herein laid
down. They should never for a moment allow themselves to forget that they are conservators, not owners
of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in
the premises, required.

25. No Sufficient Showing of Other Irregularities

As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution
of certain contracts, inclusive of the termination of the employment of some of its executives,

WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is
lifted.
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